How To Evaluate The Profit Quality In The Statements Of Listed Companies
Investors who understand the difference between profits will carefully examine the source of profit and forecast profits, and then evaluate their indication as indicator of economic value creation capability.
Then, how to evaluate and identify the profit quality of an enterprise?
Though no one can measure it.
Profit quality
From the conceptual perspective, the absolute scale of high and low can distinguish two extremes of high quality profit and low quality profit.
If the report profit is a trustworthy and reliable evaluation of the past, present and future economic value creation ability of the company, the profit is considered to be of high quality.
Comparatively speaking, the so-called low quality means that the profits on the company's financial statements are misleading to the description of the past, current economic results and future economic prospects of the company.
The key point in the definition of profit quality is the degree of reporting profits reflecting the actual situation of the company.
High quality profit reflects the current situation and future prospects of the company, and shows that the management level is more objective for the evaluation of the company's economic reality.
Low quality profits exaggerate the true economic value of the company, whitewash the company's condition or show that the management does not objectively reflect the company's current situation and future prospects.
The decline in profit quality indicates that the company's current situation and prospects are deteriorating relative to the past.
management layer
By reducing profit quality to increase profits, we try to convey to the outside world better information than the actual state of the company.
The rise in profit quality shows that the views held by management are more and more objective to reflect the company environment, and also indicate that the accounting creation ability of the company through economic value creation rather than relying on the reduction of profit quality has improved.
There are many criteria for evaluating profit quality.
For example, the following scales can be used to evaluate them at many time points: (1) the yardstick of profit quality of analysts and investors; (2) the obvious scale of profit quality in the stock market; (3) the past profit quality of the company; and (4) the profit quality of the leading enterprises in the industry.
The quality of the company's past profits is an important criterion. According to this standard, the quality of the company's current profits can be evaluated.
The change of profit quality is usually interpreted as the company's operating environment, financial environment and company's future.
prospect
A signal that has changed.
By careful reading
financial statements
Annotations, management discussions and analysis, and simple financial ratios analysis show that most of the sources of profit quality are reduced.
However, the report usage table must be clear, and managers know they are looking for identification signals.
Therefore, managers may take measures to avoid financial statements reflecting the actual situation of the company, so as to cover the deterioration of the company's situation.
For example, in order to avoid the accumulation of accounts receivable on consolidated statements, accounts receivable may be sold to parent companies or subsidiaries that do not need to be merged.
In fact, these so-called sales may be just loans.
Or, the company may guarantee the loan of the customer, so that the customer can raise funds and return the debt to the company.
Similarly, by postponed the replacement of the inventory sold, the company can reduce the end of the inventory level.
Managers who are preparing to disclose low quality profits to investors usually present superficial and flexible reasons for their behavior.
For profit quality evaluation, investors should not easily accept management statements.
A certain degree of criticism is a good preventive mechanism for misleading statements.
- Related reading
- Popular this season | Clothes &Nbsp; You Deserve The Best.
- Local hotspot | Asia Pacific Leather Exhibition Brings Unlimited Business Opportunities To The Global Leather And Fashion Industry.
- Fashion item | Get Rid Of The Shrunken Figure, Pencil Skirt Temptation
- Management treasure | We Should Make Good Use Of Temporary Promoters.
- Women's Shoes | The Shoe Bag Also Needs 3D &Nbsp; The Most New Product Is "Smooth".
- Management treasure | Use Holiday Theme To Increase Your Sales Volume.
- Management treasure | Channel Promotion: Discount Is Better Than Dealer.
- Exhibition topic | Wafi Geg: Fun I Make
- Merchant manual | How To Popularize Achievements Of Fashion Dealers
- Star Design | Taste Style &Nbsp; How To Display His Artistic Atmosphere.
- Bao Yujun: Most Taxes In China Are Rights Rather Than Statutory.
- Euro Euro &Nbsp; Spain's Budget Will Save About 27 Billion Euros.
- In 2012, Xinjiang Planned To Introduce Huge Amounts Of Money To Develop Garment And Textile Industry.
- New York Exemption From Sales Tax Of Clothing And Shoes Less Than 110 Yuan
- New York Cancelled The Sales Tax Of Clothing Shoes And Hats Less Than 110 Yuan &Nbsp; Chinese Ethnic Group Applauded.
- The Brand Of &Nbsp Is Dependent On Large Customers.
- BELLE 880 Million Bought Sportswear Dealer &Nbsp; Accused Of Expanding Blindly.
- Lining Net Profit Fell 6 To &Nbsp; The Champion Of Local Sports Brand Is At Stake.
- Luxury Brand Prada Group Intends To Expand In China
- Analysis Of China'S Textile Industry In The First Quarter Of 2012