Fundamental Analysis: Simplified Manual for Understanding Fundamental Analysis (The Toolbox of the Finance Professional Book 2)

Each time I am asked the question “what is intrinsic value” I find extremely hard to give a short answer. On the other hand, the following analogy should be of some help.
First and foremost, fundamental analysis is the art (I like to define it so) to understand the intrinsic value of a business by looking at the business' financial statements.
Let me use this analogy here. A dear friend of mine is a car flipper. In short, he makes money by selling cars that to outsiders may seem worthless. One day Ricardo - the car flipper - was driving through the neighborhood of his town; by chance he sew a car parked on the street, which looked awful from any objective standard (at least this was my opinion).
In fact, the car looked very scrappy. When Ricardo sent me a text with the picture of the car I thought he was insane. Since I believed I was a rational enough, I advised him to let that scrappy car where it was. Yet for some reasons, Ricardo found the car pretty interesting. I also asked him if he had used any drugs lately, but his answer had been negative. So, what was going on with Ricardo? Was he crazy?
The next day we met and Ricardo recalled me the story. He had parked his car and knocked at the door of the owner of the scrappy car, which was parked (or abandoned according to my point of view) outside. "Surprisingly" - said Ricardo in an ecstatic state - "the owner asked $500." I said to him "Are you kidding? For that trash can he even dared to ask you money?" and Ricardo replied "Yes, isn't that a great deal?"
I looked at Ricardo thinking that he was crazy. I had known him for an entire life and yet I haven't realized how fool he was until that moment. Yet he continued with his story:
"I knew that the car from the outside was in bad conditions" and I thought "Bad conditions? That car is ready to be scrapped!" but I let Ricardo continue with the story: "I knew that none would pay a dime to buy that car. Yet when I opened the trunk and looked at the engine I had an epiphany!" and I thought to myself "it must have been a engine made of gold!" yet Ricardo continued, "The engine was in perfect condition, therefore I paid the owner and later during the day I took the car."
Ricardo left and he promised he would tell me the rest of the story within the next coming month. Yet I said hello to him convinced I would have met him in an asylum within the next encounter. The weeks went by and I actually didn't think about Ricardo's story since I was busy with my serious projects. Yet on Sunday morning, after almost a month from our previous encounter Ricardo called me. It was very early in the morning, thus, when my phone rung I thought to myself "here you go they must have closed him in the asylum and now he is calling me to ask for help, but given the circumstances I cannot deny his insanity!" Anyway I picked up the phone and Ricardo on the other side said:
"Hey do you remember the scrappy car I bought a month ago? I spent the whole month working on it and also additional $3,500 to fix it up!" Incredulously I said, "Why in the world do you sound so ecstatic for having wasted $4,000 and a month of your life?" I could hear on the other side of the phone Ricardo ready to mock me; thus, he continued, "Well, my friend, the car I bought turned out to be a 1965 Buick Riviera GS!" and he gave me the last recoil "and I sold it for $20K!"
On the other side of the phone I remained speechless for few seconds. Not only I didn't know what to say but I also realized how stupid I had been to doubt Ricardo’s ability. In fact, although that was Ricardo’s first deal, he had spent his whole life repairing old cars for living. Although he had now decided to be in business on his own. I initially suggested not taking that risk, since he didn’t have the financial resources. Yet that man had been able to generate a 400% return in a month of work! Learn how to use Ricardo's methodology.