Understand the basic concept of compound words. A compound word is basically one complete word that has been formed by putting two existing words together. Some examples include "backpack," "groundhog" and "newspaper."
Write down the word you are trying to identify as a compound word in a notebook.
Look carefully at the entire word, particularly the first half and the second half. Your purpose is to determine whether or not the word can actually be divided into two words.
Write down the two new words you find (if you find them) below the first word. For example, if your first word is "sandpaper" you will write down "sand" and "paper."
Study the meanings of the two words you wrote down. If necessary, look them or the original word up in the dictionary to get the exact meanings. If the two words have meanings that together describe the original word, then you likely have a compound word. For example, the word "lipstick" can be broken up into "lip" and "stick." Since lipstick is actually a stick you use on your lips, then you can say "lipstick" is a compound word.