How To Judge The Profitability Of Enterprises

For enterprises, profitability is the current ability to earn money.

From a statistical point of view, if we can get the real business data of enterprises in the past period of time, investors can more accurately judge the profitability of enterprises.

It is worth noting that the average profit in a period of time is much more effective than that at a certain point in time.

Indicators of profitability

When some traditional enterprises produce financial information, they always list data such as total profits and net profits, but in fact, some ratios are far more important than the absolute value of profits.

Here are some commonly used ratios.

Main business gross margin = main business revenue net.

The gross profit margin index of main business reflects the profitability of main business.

The main business profit rate = net profit / main business income net.

It reflects the ability of main business income to bring net profit.

The higher the index, the higher the net profit that the company can create for each dollar sold.

Cost profit margin = net profit /.

The cost and profit margin index reflects the net profit that a company can create at the cost of each dollar invested.

Enterprises can achieve more sales under the same cost and investment, or under certain sales conditions, they can save costs and expenses, and this index will increase.

The higher the index, the more profits the company will invest.

Total assets profit ratio = total profit / average total assets.

The index of total assets profit rate reflects the ability that the total assets of a company can get profits, and it is an index reflecting the effect of comprehensive utilization of enterprise assets.

The higher the index, the better the asset utilization effect. The stronger the profitability of the whole enterprise, the higher the management level.

Net assets yield = total profits / average stockholders' equity.

The net assets yield shows how much net income the owner can invest in each dollar.

All of the above indicators reflect the profits of enterprises, and making money is naturally more and more good, so these indicators are usually higher and better.

However, it is worth noting that the analysis of financial statements must be compared with those of the same industry and compared with those of previous years.

Compared with peers, are these indicators a big lead or a big backwardness? If long-term backwardness is not natural, it is not a good thing to do. But we should pay attention to whether this is just a sharp lag in this year. If this is the case, one of the possible reasons is that the leaders of the enterprise are determined to reflect all the potential losses and actual property losses, so that they will be able to travel lightly, and for a while, "backwardness" will become a good thing.

In this case, the financial statements often reflect a large increase in the provision or reserve; if it is a big lead, we must find out what factors are causing the changes. Generally speaking, an industry, especially the traditional industries, is often baptized by the wind and rain for many years.

In order to avoid being deceived by financial statements, it is a very necessary method to make comparisons.

Profit structure and related pactions

Sometimes, we will see that some enterprises fluctuate very much. Why is that? Profit is a good thing, but also depends on the profit structure of enterprises. Among them, the most important indicators are non recurrent profit and loss ratio and main business ratio.

The main business ratio is well understood; the "non recurring profit and loss ratio" simply means that "often" can be traded in such a way to make money, such as selling plant land, selling shares of subsidiaries, etc.

"Profit and loss" is the loss and revenue, compared with the original purchase of these plant land, the property rights of subsidiaries, is it earned or lost.

Take a person for example, for example, a person's monthly salary is 5000 yuan, a house, when buying 500 thousand.

This year he sold the house at a price of 1 million, so he made 560 thousand this year. 60 thousand of his annual salary is his "main business income", which is sustainable. Next year there will probably be so many. And the 500 thousand income of the selling house is his "non recurring gains and losses". Next year there will be no more.

After understanding these two concepts, it is easy to analyze the ratio of non recurring profit and loss and the ratio of main business.

Main business ratio = total profit / profit of main business.

This index reveals the proportion of the profit of the main business in the profit structure of an enterprise.

Generally speaking, the continuous progress of an enterprise depends on the consolidation and development of its main business.

The higher the ratio, the more stable the profits of enterprises.

Non recurring profit and loss ratio = current year's non recurring gains and losses / gross profit.

This index reveals the situation that enterprises make profits by using non regular pactions such as equity pfer, fixed assets disposal, investment income and so on.

Non recurring profits usually have little contribution to the future years, and they do not have continuity. Therefore, they can not be used to predict the future profitability of enterprises.

If this indicator is very high, a big discount will be made on profitability.

Another structural indicator that affects corporate earnings is the ratio of related party pactions. Investors should keep their eyes open for this indicator.

Associated enterprises are more common. For example, a group of companies take part of their assets to be listed. The form of their performance is that there is a joint stock company in a group company. The stock company is still under the control of the group company. Here, group companies, listed companies and other companies within the group are related.

In practice, related party pactions are frequently seen in the company.

For example, obviously, it can sell 1000 yuan, and the associated enterprise may ask the company to sell it to 500 yuan, so there is a problem of interest pfer.

Through related party pactions, the actual controller of the company can relatively easily "do high" or "lower" the current profits of the company, and can also easily encroach on the company's rights and interests.

The ratio of related party pactions = the total amount of related pactions / net profit.

It reflects the proportion of pactions between affiliated enterprises in the total profit.

Transactions such as sales and asset replacement among related enterprises may not be continuous and fair.

Therefore, the higher the index, the greater the company's competitiveness may be.

If you get such information in the report, you need to pay great attention.

Other important factors that affect profitability

There are some other indicators in the financial statements. Although they are not purely "profit indicators", they have a very significant impact on profitability, such as inventory, accounts receivable, depreciation and accruals, cash ratio of main business, and quality of revenue from business activities.

Inventory, accounts receivable and depreciation are important means for the company to "adjust" profits and assets.

"Inventory" may be something that can never be sold out and worthless, such as outdated clothes, the older generation of equipment that has been eliminated, or the more expensive things that will be kept, such as famous liquor.

"Accounts receivable" may never be returned, or the parent company never wants to repay the loan.

Depreciation may be overestimated or underestimated, for example, some devices will be worn out in 3 years, but in order to misrepresent profits, some companies may depreciate in 5 or 10 years.

And the antiques purchased by the company may not only "never depreciate" or even appreciate, but may be amortized and depreciated in the accounting treatment of financial statements, and finally "disappear".

Therefore, the essence behind these indicators is also a matter of concern.

In addition, the cash ratio of main business and the quality of operating income should be noted.

Credit is a common phenomenon in business pactions.

As the saying goes, "bag is safe", it is real to get cash in hand.

Therefore, how much "profit" is the final "real gold and silver" is related to the quality of corporate profits.

Cash ratio of main business = net cash flow generated by operating activities / main business income, quality of operating income = net cash flow / net profit generated by operating activities.

The main business cash ratio index is the revision of the "main business profit margin", reflecting the ability to obtain cash in the completed sales, which excludes the effect of uncollectible bad debt losses.

The quality of the business income indicates the part of the operating profit that flows in cash. The higher the index, the higher the quality of the business profit.

The two indicators are also higher and better.