The concept of profit quality
Accounting profit, as an index to evaluate the financial situation and operating results of enterprises, its authenticity and persistence reflect the profit advantage of listed companies. The quality of profit refers to whether the profits of listed companies are sustainable, whether the development of profits is stable and whether profits are realized. Good profit quality is reflected in the high profitability, the ability to obtain sustained and stable profits, the ability to predict the future economic growth trend of enterprises, and the ability to convert profits into cash in time for enterprises to pay circulation expenses.
The following are several indicators of profit quality analysis.
Analysis on the Sustainability of Profit
The persistence of profit refers to the continuous trend and state of profit changes of listed companies in a long period of time. The persistence of profits is mainly manifested in the high profit income of listed companies for a period of time. Accounting profits include recurring project profits and non-recurring profits. Recurring profit is the profit brought by daily business activities, which is continuous and efficient. Non-recurring profits are generated from non-daily business activities and are unsustainable. Sustained profitability reflects the good comprehensive quality and strong development ability of listed companies. The stronger the sustainability, the higher the profit quality. The analysis of continuity indicators is as follows:
(1) ROE
Return on net assets = net profit/year-end shareholders' equity
To maintain the profitability of listed companies, it is necessary to have long-term profitability, that is, shareholders use funds efficiently, and the profitability of their funds is higher than the cost of obtaining funds, and this state will last for a long time. Return on net assets is an important indicator to reflect the profitability of listed companies. The greater the index value, the greater the profitability of shareholders using their funds.
(2) the ratio of operating profit to total profit
Ratio of operating profit to total profit = operating profit/total profit
The profit of main business is the main source of enterprise profits, the basis of normal operation and operation of enterprises, the support of total profits and the core index of enterprise profits. The higher the index, the higher the profit quality of the enterprise, the greater the possibility of sustained and stable development of the enterprise, and the higher the profit quality it creates, which plays a key role in the company's operating results. If the ratio is greater than 1, it shows that the main business of the enterprise has played a key role in the enterprise's profits and made great contributions, and its profitability can drive the enterprise to continue to make profits in the future, so the quality of the enterprise's profits is high; If the ratio is less than 1, it means that part of the total profit of the enterprise comes from other projects, and the surplus of the enterprise is temporary, just like a one-time sale, and the profit quality of the enterprise is not ideal.
2. Reliability analysis of profit
Whether the profit is reliable depends on whether the profit of the enterprise can be maintained at a high level. When profits are manipulated, financial statements are whitewashed and books are profitable. However, it is difficult for this whitewash to keep profits at a high level for several consecutive fiscal years, and it is also difficult to generate a large net cash inflow in business activities. Therefore, it is necessary to consider the reliability of profits. The reliability of profit needs to check the fluctuation range and trend of enterprise's profit in recent years to see whether the profit is growing and showing a stable and sustained growth trend.
The stability indicators are analyzed as follows:
(1) structural ratio of cash inflow
Structure ratio of cash inflow = cash inflow from operating activities/total cash inflow.
Cash inflow includes cash inflow from operating activities, cash inflow from investment activities and cash inflow from financing activities. The cash flow generated by business activities determines whether the profit of an enterprise is stable and reliable. The bigger this index is, it shows that the profit of the enterprise is mainly realized through the main business of the enterprise, and the profit has good deformability and high quality. On the contrary, it shows that enterprises rely too much on investment and financing activities to obtain cash, and the future development trend is not ideal.
(2) Net profit growth rate
Net profit growth rate = net profit growth this year/net profit last year.
Net profit is the operating result of an enterprise in a certain accounting period, and it is the favorite evaluation index used by the majority of shareholders to evaluate listed companies. Its growth rate determines the overall growth rate of the company's profits and reflects the stability of the company. The high index reflects the company's future development trend and good growth. If the index is greater than 0, the better the profit quality; The index is less than 0, indicating that the net profit has declined and the profit quality is not ideal.
3. Liquidity analysis of profits
The system defect of accounting determines the maneuverability of profit. For example, accounting profit is formed on the basis of accrual basis and accounting staging, that is, the net profit obtained is not necessarily the ready-made cash flowing into the enterprise. Even if the current profit is large, its liquidity may not be strong, and a considerable part of the profit may not be realized because of factors such as sales methods and policies. Only when the accrued net cash inflow becomes the actual net cash inflow can there be cash guarantee and the real realization of profit be shown.
Sales cash ratio = cash received from operating activities/main business income.
Enterprises with good profits, through the cash inflow brought by normal production, purchase and sale, have good ability to pay, in addition to paying the funds needed for business activities, they can also meet other requirements of normal operation, such as paying cash dividends. The greater the ratio, the stronger the ability of converting accounts receivable into cash, the less likely the accounts receivable are to be manipulated, and the better the income quality; The smaller the ratio, it shows that accounts receivable has become a factor to whitewash profits, and its income realization ability is low, which may lead to the inflated income of enterprises and achieve the purpose of inflated profits.