First, the eight judgment passwords of the income statement: Class E insulation
1. The better the company’s cost of sales, the better.
Only by minimizing the cost of sales can the sales profit be maximized. Although the sales cost alone does not tell us whether the company has a lasting competitive advantage, it can tell us the size of the company’s gross profit. Class E insulation
By analyzing the company’s profit statement, one can see whether the company can create profits and whether it has lasting competitiveness. Whether an enterprise can make profits is only one aspect. It should also analyze the way the company makes profits. Whether it needs a lot of R&D to remain competitive and whether it needs to leverage wealth to obtain profits. Through the mining of these information from the income statement, you can determine the company’s economic growth driving force, because the source of profit is more meaningful than the profit itself. Class E insulation
2. The key indicator of long-term profitability is gross margin.
The gross profit of the enterprise is the fundamental of the company’s operating income. Only companies with high gross profit margins may have high net profits. When we observe whether a company has a sustainable competitive advantage, we can refer to the company’s gross profit margin. Class E insulation
The gross profit rate can, to a certain extent, reflect the continuous competitive advantage of the company. If a company has a continuous competitive advantage, its gross profit margin is at a relatively high level, and companies can freely price their products or services so that the selling price is much higher than the cost of their products or services. If an enterprise lacks a sustainable competitive advantage, its gross profit margin is at a relatively low level, and enterprises can only be priced based on the cost of the product or service and earn a meagre profit.
If a company’s gross profit margin is above 40%, then most of the company has a certain sustainable competitive advantage; gross margin is below 40%, which is in a highly competitive industry; if the average gross margin of a certain industry is lower than 20%, then There must be excessive competition in the industry. Class E insulation
3. Pay special attention to sales expenses.
In the course of operation, the company will generate sales expenses. The sales cost will directly affect the long-term business performance of the company. When concerned, it can be linked to income to assess the rationality of the structural ratio. In addition, the fixed cost can be fixed and changed to control.
4. Measure sales costs and general management costs.
In the course of the company’s operations, sales expenses and general management expenses cannot be discounted. We must stay away from companies that always require high sales expenses and general management expenses, and try hard to find companies with low sales expenses and general management expenses. In general, the lower the proportion of such costs, the higher the company’s return on investment. Class E insulation
If a company can control the ratio of sales expenses and general management expenses to gross profit below 30%, it is a company worth investing in. However, such companies are after all a minority, and many companies with good competition are also between 30% and 80%. That is to say, if the proportion of such costs in one industry or one industry exceeds 80%, then you can abandon the investment. The home or the industry.
5. Stay away from companies that have high research and development costs.
Companies that must spend huge R&D expenditures have flaws in their competitive advantages. This makes them put long-term business prospects at risk and investing in them is not safe. Class E insulation
Companies that rely on patents or technologies to maintain a competitive advantage do not actually have a truly sustainable competitive advantage, because once the patent protection period expires or new technology emerges, these so-called competitive advantages disappear. To maintain competitive advantage, enterprises must spend a lot of money and energy on developing new technologies and new products, which will also lead to a decrease in net profit.
6. Do not ignore depreciation expenses.
The depreciation expense has a great influence on the company’s operating performance. When examining whether a company has a continuous competitive advantage, it must pay attention to the depreciation of the plant, machinery and equipment. Class E insulation
7. The less interest expense, the better.
Compared with other companies in the same industry, those companies that have the lowest proportion of interest expense to operating income tend to have the most continuous competitive advantage. The interest expense is the financial cost, not the operating cost, which can be used as a measure of the company’s competitive advantage in the same industry, usually the less the interest expense, the better its operating status.
8. Non-recurring gains and losses cannot be ignored when calculating business indicators. Class E insulation
When investigating the business status of a company, it is necessary to eliminate the benefits or losses of these accidental events from non-recurring items, and then calculate various business indicators. After all, such non-recurring profits and losses cannot happen every year. Also consider the impact of income tax to analyze the net interest rate. Class E insulation
Second, the balance sheet ten judge password:
1. Companies without debt are really good companies. Class E insulation
Good companies do not need to borrow money. If a company can have relatively bright results with a very low debt ratio, then this company is worth our investment. When investing, it is important to choose companies with low debt ratios, and also try to choose companies with simple businesses. Although the business is simple, it is not a simple company.
2. Cash and cash equivalents are the company’s security guarantees. Class E insulation
The availability of free cash flow is one of the main indicators of whether a company is great. Free cash flow is more important than growth. For companies, there are usually three ways to obtain free cash: A, issuing bonds or stocks; B, selling part of business or assets; C. Keeping operating income cash inflows higher than operating costs outflows. Class E insulation
3. Excessive debt ratio means high risk.
Debt management is like a barbed rose in an enterprise. If a rose has a lot of thorns, how can you be sure that you will be careful not to be stabbed? The best way is to try to choose companies that have no thorns or very few thorns. In this way, our chances of winning will be greater. Class E insulation
4. The debt ratio varies according to the industry.
When observing a company’s debt ratio, it is reasonable to compare it with the debt ratio of other companies in the same industry at the same time. Although good corporate debt ratios are relatively low, companies in different industries cannot be put together to compare debt ratios. Class E insulation
5. The level of debt ratio has nothing to do with accounting standards.
Different accounting standards can calculate the difference between the same data. Therefore, when analyzing the companies to invest in, it is important to understand as far as possible what accounting standards the company uses. If the company has subordinate companies, then it must be noted that the company’s report includes all the data of all subsidiaries. Class E insulation
6. Not all liabilities are necessary.
When analyzing financial statements, if you discover companies in financial reports because of high costs and high debt ratios, then you must treat them with caution. After all, companies that do not know how to save costs can produce high quality and low price products. If there is no high quality and low price of goods, how can we earn generous returns for shareholders?
7. Zero-coupon bonds are a double-edged knife. Class E insulation
Zero-coupon bonds are a useful financial tool that can save money and generate returns for investors. However, investment risks also exist. When buying zero-coupon bonds, we must always beware of not paying cash on time. Observe the company’s reputation carefully and don’t be fooled by the company’s appearance. Zero-coupon bonds are a double-edged sword. They can save people and hurt people. They must strive to make zero-coupon bonds become their own helpers rather than their enemies.
8. The less the fixed assets, the better. Class E insulation
When choosing a company to invest in, try to choose to produce companies that do not need to continuously update their products. Such companies do not need to invest too much money in updating production plants and machinery and equipment. Relatively, they can create more for shareholders. Profits allow investors to get more returns. Class E insulation
9. Intangible assets are non-measurable assets.
Corporate intangible assets are as important as tangible assets. Investors should also learn more about the company’s reputation when choosing an investment company. Obviously, companies that rely on $10 tangible assets to generate one yuan of profit and one yuan of tangible assets to generate one yuan of profit are certainly different, and intangible assets are also different. Class E insulation
10. Excellent companies rarely have long-term loans.
Long-term loans are not necessary for good companies, but it does not mean that companies with high long-term loans are not good companies. It is necessary to analyze and consider the causes of liabilities to see if they are leveraged buyouts. Class E insulation
Third, the cash flow statement of the six judgment password:
1. Companies with plenty of free cash flow are good companies. Class E insulation
Just as if there were no birds in the woods and you didn’t catch birds, if the company did not generate free cash flow at all, how could investors expect to profit from it? The only profit that can be made is to use the market bubble to create a bubble company. Only if the company has sufficient free cash flow can investors obtain returns from investment.
2. Free cash flow represents real money. Class E insulation
If a company can maintain its current level of development without relying on constant capital investment and foreign debt support, and relying on the free cash flow generated during the operation, then it is a good company. Don’t miss it. In this way, the macroeconomic situation becomes less important.
3. Great companies must have sufficient cash flow. Class E insulation
Free cash flow is very important. When choosing an investment target, we should not be confused by data on growth rate, growth rate, etc. Only ample free cash flow can give us the true return investors want.
4. Allocation of funds essentially means the most important management behavior.
The best way to allocate funds is to return profits to shareholders. There are two ways: First, increase dividends and more dividends; second, buy back shares. Class E insulation
5. Cash flow can not just look at the book number.
Do not fully rely on the company’s accounting accounts, accounting accounts can not fully reflect the entire business operation. Class E insulation
6. Free cash flow depends on outstanding managers. Class E insulation
For a company, sustained and abundant free cash flow depends not only on the business it is engaged in, but also to a large extent on the wise leadership of its management. All, when choosing a company to invest in, it is also important to pay attention to the performance of corporate managers. Class E insulation