Expert Manufacturer of custom steel fabrication
First, the eight codes for judging the income statement:
- The less the sales cost of a good enterprise, the better.
Sales profits can only be maximized by minimizing the cost of sales, although the cost of sales alone does not tell us whether or not the company has a lasting competitive advantage. But it can tell us the size of the company’s gross profit. Expert Manufacturer of custom steel fabrication
By analyzing the profit statement of the enterprise, we can see whether the enterprise can create profits and whether it has lasting competitiveness. Whether the enterprise can make profits is only one aspect, but also the way in which the enterprise obtains profits. Whether it needs a lot of R & D to remain competitive, whether it needs to leverage wealth to make a profit. Because the source of profit is more meaningful than the profit itself.
- The key indicator of long-term earnings is gross margin.
The gross profit of the enterprise is the foundation of the operating income of the enterprise, only the enterprise with high gross profit rate can have the high net profit, we can refer to the gross profit rate of the enterprise when we observe whether the enterprise has the sustainable competitive advantage or not.
To a certain extent, the gross profit rate can reflect the sustainable competitive advantage of the enterprise. If the enterprise has a sustained competitive advantage, its gross profit margin is at a higher level, and the enterprise can freely price its products or services. Let the price be much higher than the cost of the product or service itself. If the enterprise lacks the sustainable competitive advantage, its gross profit margin is at a lower level, and the enterprise can only price according to the cost of the product or service. Earn a meagre profit. Expert Manufacturer of custom steel fabrication
If a company’s gross profit margin is more than 40%, then most of the company has some kind of continuous competitive advantage; Gross profit rate is below 40%, it is in highly competitive industry; If an industry’s average gross margin is below 20, then there must be excessive competition in that industry. Expert Manufacturer of custom steel fabrication
- Pay special attention to sales expenses.
Enterprises in the process of operation will produce sales expenses, the amount of sales costs directly affect the long-term business performance of enterprises. Concern can be linked with income to assess the rationality of the structure ratio. For fixed costs variable fixed to change to control.
- Measure sales expenses and general management expenses.
In the course of the operation of the company, sales expenses and general management expenses should not be underestimated. We must stay away from those companies that always need high sales and general administrative expenses. Try to find companies with low sales and general overhead costs. Generally speaking, the lower the proportion of such costs, the higher the return on investment. Expert Manufacturer of custom steel fabrication
If a company is able to keep sales costs and overhead costs below 30% of gross profits, it is a company worth investing in. Many companies with consistently competitive excellence also have a ratio of 30% to 80%, that is, if the proportion of such expenses in one or an industry exceeds 80%. Then you can give up investing in the home or this type of industry.
- Stay away from companies with high research and development costs.
Companies that have to spend huge sums on research and development have the pitfalls of a competitive advantage, putting their long-term prospects at risk and investing in them is not safe.
Those who rely on patent or technological leadership to maintain a competitive advantage, in fact, do not have a real sustained competitive advantage, because once the patent protection period or the emergence of new technology replacement. These so-called competitive advantages will disappear, and if companies are to maintain their competitive advantage, they will have to spend a lot of money and energy on developing new technologies and new products, which will lead to a decrease in net profit.
- Don’t ignore the expense of depreciation. Expert Manufacturer of custom steel fabrication
The depreciation cost has a great influence on the business performance of the company. When examining whether the enterprise has a continuous competitive advantage, we must attach importance to the depreciation expenses of the factory building, machinery and equipment.
7.The less interest payments, the better. Expert Manufacturer of custom steel fabrication
Compared with other companies in the same industry, those companies with the lowest proportion of interest expenses to operating income tend to have the most sustainable competitive advantage. Interest expenses are financial costs, not operating costs. It can be used as a measure of the competitive advantage of companies in the same industry.
- The non-recurrent profit and loss should not be ignored when calculating the operating index. Expert Manufacturer of custom steel fabrication
When examining the business situation of an enterprise, we must exclude the gains or losses of these incidental events, and then calculate various business indicators. After all. Such non-recurring gains and losses are unlikely to occur every year. The impact of income tax should also be considered to analyze net interest rates.