From a business perspective, the relationship between net assets and net profit should be emphasized, because after a business grows, it is not enough to just make profits. It also needs to show whether the entire assets of the business can bring value to the brand value of the business. Rapid expansion. If a company only improves profits, it can only prove that the company has profitability. If the company wants to have better cash flow, it must also have better asset accumulation. Therefore, from the perspective of corporate profitability and survival, net profit is no problem, but from the perspective of corporate development, companies still need to strengthen their assets and bring about brand effects.
Generally speaking, when investors make acquisitions, especially when signing a gambling agreement, they will consider the company's assets, profits, sales revenue and other factors. Therefore, companies must not only make profits but also grow their assets. In order to cultivate a good corporate balance sheet, we must do the following: enlarge owner's equity, ensure that the company's long-term assets and current assets are in a healthy and reasonable structure, and allow long-term liabilities and current liabilities to show a healthy level of development.
2. Current assets
Current assets are also a key element of business operations. Nowadays, many CEOs of small and medium-sized enterprises no longer consider operations, but consider financing, because current assets are a key part of the enterprise. If they are not handled well, they may have a lot of negative impacts on the asset operations of the enterprise.
Consider the efficiency of capital use
In the actual work of the enterprise, you may encounter the impact of the enterprise's return on total assets, return on net assets and investment payback period, as well as the impact on the enterprise. Cash flow related issues.
The accrual basis means that as long as the product is produced, it must have added value. As long as there is added value, profits will be generated, and as long as there is profit, book profits must be made, even if the product is not sold. When a product is sold, what is recovered is cash flow, but what is not recovered is book profit. For example, as long as mobile phones are produced, output tax will be generated (the so-called output tax means that the enterprise will generate value-added, and if there is value-added, there will be value-added tax). If the mobile phone cannot be sold and placed in a warehouse, and cannot be written off, it may become a bad debt. Assuming that funds are not recovered within the 90-day inventory turnover cycle, the extra 90 days will occupy the company's capital costs and have a great impact on the company's capital liquidity. Therefore, companies must consider the efficiency of the use of funds, which is the impact of accrual accounting.
Improving the level of corporate management
Whether it is a profit and loss statement or a balance sheet, the quality of the company's book assets must be high and can be realized. Otherwise, no matter how high the book profit is, it will be meaningless. This requires enterprises to revitalize assets and improve asset utilization efficiency as much as possible, which reflects the level of enterprise managers. Therefore, some people can decisively buy stocks based on the company's balance sheet and profit and loss statement. It should be noted that some corporate financial statements may be fraudulent, and people need to carefully identify them during the review process.
2. Analysis of important terms in the profit and loss statement
1. Indicators in the profit distribution process
In operating profit, it mainly involves the following elements:
Profit before interest and tax
The first indicator that is often contacted in the profit and loss statement is called EBIT or PBIT, which is profit before interest and tax or operating profit. Generally speaking, the operating status chain of modern enterprises is maintained in the profit before interest and tax state, and cannot be in the net profit, because many other factors have already been involved in the net profit.
Profit after tax
Profit after tax, also called PAT. In the case where the after-tax profit is not falsified, the company's return on equity can be correctly determined by the ratio of after-tax profit and net assets, and the utilization rate can be determined by dividing the stock price by the net profit per share.
Profit before tax
Through the composition of a company's pre-tax profit, we can determine what the company will do in the future, because the company will obviously put the profits of its main business in a prominent position. If a company has a different distribution of pre-tax profits across its portfolio, the company should be looking to the future. To cultivate future profits, the company's pre-tax profits will take shape in the first year.
Therefore, by understanding profit distribution, we must generally grasp the status structure of corporate profits, including the impact on undistributed profits.
2. Return on total assets and return on net assets
Return on total assets reflects the relationship between the asset-liability ratio and total assets, that is, the ratio of liabilities to assets; net Return on assets is a key indicator for determining the value of a company.
Focus on market value
A survey found that many of the world's top 500 companies regard return on equity (ROE) as very important. This means that companies must have creative The determination of a century-old brand.
There are two main types of value created by an enterprise. One is economic value, which is after-tax profit minus asset cost; the other is MVA, which is market value. The first choice for economic value is profit, while market value focuses on the contribution of assets to the brand. In other words, if a company focuses on income rather than the quality and level of net assets, the company will only make immediate money; if it focuses on the quality and efficiency of net assets and total assets, it will earn future money. Therefore, many Fortune 500 companies do not attach much importance to the development of net profits, but rather to improving the quality of assets, because quality and efficiency can enable companies to achieve the fastest development.
The biggest difference between market value and economic value is that market value requires a lot of funds in the early stage and does a lot of market preparation for positioning, but there is no benefit. Therefore, many companies now pay more attention to economic value, including performance appraisals, KPI key performance indicators, balanced scorecards, etc., all for the sake of economic value, which can easily lead to companies taking the wrong approach.
Do a good job of return on net assets
Return on net assets is the ratio of after-tax profits and net assets. If a company can do a good job on return on net assets, the entire market value will be Zoom in a lot.
The relationship between return on total assets and return on net assets
Return on net assets is the ratio between after-tax profit and owner’s equity. Return on total assets and return on net assets Rates are two important indicators for measuring investment returns. They reveal two different aspects of the business process. The total asset investment rate focuses on the overall operating efficiency of the company, while the net asset efficiency rate reflects the conversion of operating efficiency into shareholder returns, that is, what value can be created for shareholders. Therefore, in the process of increasing return on net assets and return on total assets, companies must not only improve operating performance, but also improve efficiency.
To improve the efficiency of asset use, we must improve the efficiency of inventory use and the rate of return on accounts receivable, fixed assets and total assets. In this way, the enterprise's asset utilization efficiency can be higher. Therefore, when managers evaluate performance, they need not simply evaluate sales revenue. But in fact, many domestic companies only assess sales revenue and do not pay attention to other indicators. This usually creates an illusion for the company's sales front-end, thinking that it only needs to complete the sales task.
3. Operating profit margin
Operating profit margin depends on common sales revenue and costs. Among them, costs are divided into variable costs and constant costs. Variable costs include materials, labor, water, electricity, gas, heating and other expenses. Selling expenses, administrative expenses and manufacturing expenses are also important components of expenses.
In short, if an enterprise wants to increase its operating profit margin, it must control operating costs, fixed manufacturing expenses, sales expenses, administrative expenses, financial expenses, taxes, interest, dividends, etc. At the same time, it must also simultaneously control raw materials, Labor, sales revenue, management fees, etc., so that the company's costs can be controlled.
4. Total asset turnover rate
In the process of total asset turnover, the profit before interest and taxes will be related to the expenses to be spent on the balance sheet. In order to realize these profits, When verifying the determinants of total asset turnover, the necessary expenses need to be accounted for. For example, administrative expenses, part of sales expenses, and travel expenses can be omitted, but sales costs, communication with customers, and customer cultivation expenses cannot be omitted.
When formulating asset efficiency, key indicators must be reflected, that is, it is necessary to distinguish which expenses can be saved and which expenses cannot be saved. Therefore, the asset turnover rate mainly depends on the average net fixed assets, average inventory balance, and average accounts receivable balance. Every time a batch of goods is produced, it is necessary to estimate the possible backlog of inventory, prepare an inventory budget in advance, predict the impact of fixed assets on the total asset turnover rate, and make appropriate adjustments correctly.
It is an ideal state for a company to have no accounts receivable and no inventory. Therefore, it is necessary to find ways to consider the average net fixed assets, inventory, and accounts receivable, that is, to control these indicators within a certain range. .
5. Accounts receivable turnover days
When an enterprise formulates sales targets, in addition to determining sales revenue, it must also determine the number of days accounts receivable is outstanding. Accounts must be collected within the agreed turnaround time, otherwise, the company's funds will be occupied. Therefore, certain restrictions must be placed on it.
Accounts receivable mainly assesses several common indicators, such as days to collect accounts receivable (DSO) and asset structure. Among them, the combined proportion of accounts receivable and inventory in the asset structure should not exceed 20% of total revenue.
6. Inventory turnover rate
In inventory management, it is generally necessary to determine the inventory turnover rate, or the number of inventory turnover days. The calculation formula is:
Inventory turnover rate = cost of sales ÷2
= (beginning inventory + plus ending inventory divided by) ÷2
Inventory turnover days = 360 days ÷ inventory turnover rate
7. Fixed asset turnover rate
Fixed asset turnover rate
Fixed assets have a relatively large negative impact on capital liquidity. When confirming this indicator, turnover speed should be taken into consideration as much as possible, otherwise, it will easily have a major impact on the entire industry. Generally speaking, the turnover rate of fixed assets often becomes a key bottleneck restricting the development of small and medium-sized enterprises.
To some extent, the turnover rate of fixed assets should be accelerated and not occupy too much funds. Therefore, the balance between fixed assets and current assets must be taken into consideration when the company's total assets are turned over, and fixed assets cannot be allowed to become a key factor restricting the development of the company. In short, companies should not expand fixed assets at will, because high fixed assets mean low current assets.
Development of intangible assets
In the development of intangible assets, the standard is to purchase patents, purchase technology and franchise. When purchasing brands and goodwill, the simplest way for enterprises is mergers and acquisitions.