First, the eight codes for judging the income statement:
- The less the sales cost of a good enterprise, the better. China stainless steel sheet metal fabrication Manufacturer
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. China stainless steel sheet metal fabrication Manufacturer
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. China stainless steel sheet metal fabrication Manufacturer
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. China stainless steel sheet metal fabrication Manufacturer
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. China stainless steel sheet metal fabrication Manufacturer . 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.
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. China stainless steel sheet metal fabrication Manufacturer.
- 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. China stainless steel sheet metal fabrication Manufacturer. For fixed costs variable fixed to change to control.
- Measure sales expenses and general management expenses. China stainless steel sheet metal fabrication Manufacturer
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.
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. China stainless steel sheet metal fabrication Manufacturer
- 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 competitive advantage, putting their long-term prospects at risk, and investing in them is not safe. China stainless steel sheet metal fabrication Manufacturer
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.
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.
The fewer interest payments, the better.
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.
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. China stainless steel sheet metal fabrication ManufacturerAfter 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.
Two, the ten judgment codes of the balance sheet:
- an enterprise without debt is a really good enterprise.
The company does not need to borrow money. If a company can be in a very low debt ratio also has relatively brisk performance, then the company is worth the investment. The investment, companies must choose a lower debt ratio, the company should try to choose those simple business, business is simple but does not simply.
- cash and cash equivalents are the security of the company.
Free cash flow is abundant, is a measure of whether an enterprise is one of the main signs of greatness. China stainless steel sheet metal fabrication Manufacturer. Free cash flow is more important than growth. For the company, there are three ways to get free cash: A, issuing bonds or shares; B, the sale of part of the business or assets; C has been operating cash income the operation cost of cash inflows greater than outflows.
- high debt proportions mean high risk.
Of the debt management, the enterprise is like a rose with thorns on the roses, if there are so many thorns, how can you be sure you accidentally stabbed into? The best way is to try to choose without spines or rarely unarmed enterprises so that we will be great odds.
- the rate of debt varies depending on the industry.
When observing the debt ratio of an enterprise, it is reasonable to compare it with the liabilities ratio of other industries in the same industry at the same time. China stainless steel sheet metal fabrication Manufacturer. Although the good corporate debt ratio is relatively low, it can’t compare the liabilities ratio of different industries.
- the rate of debt has nothing to do with accounting standards.
Different accounting standards to the same data to calculate the results. So far in the analysis of investment enterprises, must try to understand the company’s use of the accounting standards. If the company has subsidiaries, so attention must be paid to the company in the report is not all data for all subsidiaries are included.
- not all liabilities are necessary.
In the analysis of results, if the company is found from the results because of the high cost caused by high debt rate, so you must be careful about it. After all, do not know how to save the cost of the enterprise, how to produce cheap goods? If not cheap goods, how can earn huge returns for shareholders?
- zero interest bond is a double-edged knife.
A zero-coupon bond is a useful financial tool, not only can tax, but also can bring benefits to the investors. But the investment risk also exists. In the purchase of zero-coupon bonds, must be wary of cash. Unable to carefully observe the enterprise what about do, don’t be deceived by the appearance of zero-coupon bonds is one. The double-edged sword, it can save can hurt, try to make zero-coupon bonds as their helper rather than the enemy.
- the less the fixed assets, the better.
In the choice of investment enterprises, try to choose those who do not need to continue to update the product production enterprises, so that enterprises do not need to spend too much money on updating the production plant and equipment, relatively can create more profits for shareholders, so that investors get more returns.
- intangible assets belong to unmeasurable assets.
The intangible assets and tangible assets as important, investors in the selection of investment companies, but also to learn more about the reputation of the enterprise. Obviously, by 10 yuan of tangible assets generated 1 yuan and 1 yuan profit on tangible assets 1 yuan money profit enterprises is certainly different intangible assets. Also. China stainless steel sheet metal fabrication Manufacturer.
- excellent companies rarely have long term loans.
A long term loan is not necessary for excellent companies, but it doesn’t mean that companies with high long-term loans are not good companies. We should consider the reasons for liabilities and see if they are leveraged buyout.
Three. The six judgment passwords of the cash flow statement:
1, free cash flow is a good enterprise.
If the woods no bird, you could not catch a bird, if the enterprise does not generate free cash flow, how can investors expect profit from it? Profit may only be those who use market bubbles create bubble companies. Only enterprises have plenty of free cash flow, investors can obtain a return on investment.
2, free cash flows represent real silver.
If an enterprise can not rely on capital investment and debt support, free cash generated by operations in the process flow can maintain the current level of development, it is a good business, don’t miss it. In this way, the macroeconomic situation is not so important.
3, great companies have to be full of cash flow.
Free cash flow is very important. When choosing an investment object, we should not be confused by data such as growth rate and growth rate. Only enough free cash flow can give our investors the real return.
4, in essence, the allocation of funds is the most important management behavior.
The best way to allocate money is to return the profit to the shareholders. Here are two ways: one is to raise dividends, more dividends, and the two is to buy back stock.
5, cash flow can’t just look at the book number.
Do not completely trust the accounting accounts of the enterprise. The accounting accounts do not fully reflect the whole business.
For an enterprise, sustained and abundant free cash flow is not only dependent on the business but also depends on the wise leadership of the enterprise management.