1, depending on income
A healthy and stable growth enterprise, its income should mainly come from "main business income", and the main business income has grown steadily for three consecutive years. If a large part of the income comes from temporary one-off income, for example, some companies always increase their income by selling assets and subordinate enterprises, then the company's ability to continue to operate is questionable.
Step 2 look at profits
This indicator directly reflects the profitability of the company. For this indicator, we need to analyze it in depth and treat it dialectically. We need to pay attention to whether the main source of company profits comes from "main business profits"; Excessive proportion of temporary one-off profit sources (such as investment income, net non-operating income and expenditure and financial subsidies) will only increase the instability of enterprises and increase the risks of enterprises.
3. Look at assets and liabilities
In the three financial statements, some important indicators of profit and cash flow are analyzed respectively, so which indicators in the balance sheet are also deceptive? The answer is inventory. The company's inventory includes product inventory, raw material inventory and so on. Too much inventory will affect the production and operation of the company in the next reporting period.
If a company's product inventory is large, it is likely that the company's product sales have encountered difficulties and the pressure of destocking is heavy, so it is relatively difficult to continue to expand production capacity in the next reporting period; Moreover, more importantly, high inventory faces high risk of falling product prices, which will directly affect the company's performance.
It is precisely because of the risk of price fluctuation of inventory goods that the current accounting standards require provision for inventory depreciation (or appreciation). It is worth mentioning that although some companies are in a state of high inventory, they have not made or made less depreciation. Such financial statements are not accurate and objective enough, which is suspected of financial whitewashing.
When reading the annual report, investors should not be confused by the surface of the annual report, but also analyze, observe and carefully study the key contents of the annual report, and be alert to some common traps.
1. Sales profit rate trap
If the sales profit rate in the report changes greatly, it indicates that the company may underestimate or overcharge expenses, resulting in an increase or decrease in book profit.
2. Accounts receivable project trap
If some companies include the rebate expenses of sales network in accounts receivable, the profits will be inflated.
3. Bad debt reserve trap
Some accounts receivable cannot be recovered for a long time due to various reasons. The longer the account age, the greater the risk.
4. Depreciation trap
If the project under construction is not converted into fixed assets after completion, the company will let go of depreciation, some will not extract depreciation according to the replaced fixed assets, and some will even reduce the depreciation rate and inflate the company's profits.
5. Tax refund income
Some tax refund income is not included in the capital reserve fund as required, but included in profits; Some will delay the tax refund period, resulting in inaccurate current profits.