There are three main indicators and several incidental indicators.

The main indicators

1. Return on Equity

This is the first indicator of Buffett's stock selection, reflecting the strength of the company's profitability.

Return on Equity = Net Profit/Net Assets X 100%

The repeated is the profit that the assets invested by the shareholders get in a certain period.

If you put this ratio above 15%, you can rule out 90% of companies.

2. Net Profit Margin

Net Profit Margin reflects the percentage of the company's operating income that is net profit.

Net Profit Margin = Net Profit / Operating Income X 100%

This is the same as the Return on Equity, and can be compared across industries.

3. Gross Profit Margin

Gross Profit Margin is to look at the company's operating costs accounted for the proportion of operating income, which is to look at the company's product scarcity and competitive indicators.

Gross Profit = Gross Profit/Revenue

Gross Profit = Revenue - Operating Costs

Attachment Indicators:

Sales Discount Rate: Response to the quality of profitability

Gearing Ratio: Response to the company's indebtedness

Free Cash Flow: Response to the quality of profitability

Inventory Turnover, Accounts Receivable Turnover, Accounts Payable Turnover, and Accounts Payable Turnover. Inventory turnover, accounts receivable turnover, accounts payable turnover: reflecting the company's use of funds

Price-earnings ratio, price-savings ratio: reflecting the current valuation

And so on.

Finance is the most direct reflection of the operating conditions of a business, as an ordinary investor, we do not have professional financial knowledge, but some of the basic knowledge, we must understand, otherwise it is easy to step on the mine.

1. Income statement The income statement is a direct response to a company's ability to make money, operating income, net profit, as well as revenue growth and net profit growth in recent years.

2. Balance sheet, a company's inventory, accounts receivable, accounts payable, company liabilities, cash flow, these are to a certain extent a reflection of a company's operating benign degree.

3. A company's cash flow is a company's operating moat, a debt is too high, the performance of the company also continued to increase, the profit is very beautiful company must be avoided, easy to have mine.

Investment risk, all we can do is try to avoid the minefield, only alive is hope.

The answer to this question is as follows:

As a long time in the first line to analyze the enterprise financial statements of the tax people, how to analyze the enterprise financial statements have the following experience:

2. Look at the financial statements to pay attention to see before and after the index data comparison. First, all kinds of ratio data comparison changes, such as gross profit rate before and after the index comparison changes; Second, all kinds of financial statement indicators of abnormal data changes, such as significant changes in the cost of goods sold, before and after the significant changes in capital surplus data, asset impairment losses and so on.

In short, analyzing the financial statements of enterprises is a very professional work, not only need solid theoretical knowledge of finance and taxation, but also a wealth of practical experience in finance and taxation work and long-term experience in financial statement analysis.

What are the main indicators of financial statements?

As an old accountant who has been working in accounting for many years, I am glad to answer your question. Financial statements are written documents that summarize the financial position and results of operations of a business. As a stockholder to study good financial statements, not only can understand the company's dynamics, mining potential stocks, but also can avoid many potential risks, that is to say, can avoid stepping on the mine, for example, like the Kangmei Pharmaceuticals, Shenmu environmental protection and other stocks, the financial statements in the thunderstorm before the hidden risks can be seen long ago. Three statements include: balance sheet, income statement, cash flow statement. It should be noted that the financial statements of different industries are not exactly the same, for example, the financial industry and manufacturing industry, there are many different places, but in general is still similar, I focus on the following from the perspective of the shareholders to explain:

3, the cash flow statement, the statement is mainly to tell us, in a period of statements, the company receives inflow of how much cash, expenditure to go to the how much cash, the net cash flow is How much. When we look at this statement, we have to look at the income statement to see if the cash flow and net profit are relatively matched. For mature companies, cash flow is significantly lower than net profit is not a good thing, may be accounts receivable, inventory, etc. increased; but for the growth of entrepreneurial type of company to have a certain degree of tolerance, because this type of company invested in the early stages of the larger, be sure to differentiate between them.

Summary: Don't be too dogmatic about financial statements, and be sure to analyze them in conjunction with the company's financial statements, especially some non-recurring increases or decreases that must be studied.

In the past two years, a large number of companies were exploded financial fraud, mine is one after another. So, more and more people began to pay attention to the interpretation of corporate financial reports, even if they do not seek to bring much investment gain, but no longer step on the mine.

At the same time, along with the strengthening of regulation, the disclosure of financial reports has become more standardized, and the readability of financial reports has increased.

The financial report is one of the most direct and effective ways to understand a company.

A complete financial report can be dozens of pages long, and it's okay to be selective about the financial indicators.

As for the question of which indicators to look at, different starting points, different perspectives, the focus will naturally be a little different.

I'm going to list a few financial subjects that I think are relatively important for reference.

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Before we look at the statement, we first have to look at the "Accountant's Opinion"

Where the accounting firm is not willing to issue a "standard unqualified opinion

Where the accounting firm is unwilling to issue a "standard unqualified opinion", you will have to qualify your opinion on such a report. If it's too much trouble, you can just rule out the company.

......

The three main financial statements: income statement, balance sheet, and cash flow statement.

In these three tables, I think the following subjects should at least look at

Income statement:

1, gross profit margin: The size of the gross profit often represents the market competitiveness of the company's products;

2, expense ratio: If you see a company's gross profit is good, but the cost of the company's products is not.

2. Expense ratio: If you see a company with good gross profit, but the expense ratio is too high, it will not make much money in the end;

1. Money funds: This is an observation of a company's cash flow situation, the specific combination of the industry to set the tone.

2, accounts receivable : If there is a company on the books simply do not have a few money, but there are still a lot of "accounts receivable", it is likely that there are a number of cats

Cash flow statement:

Net cash flow from operations/investments/funding

For example, if a company, operating, investing net are positive, but at the same time, the net fund-raising is also positive, then you should think: since this business through the operation of the money, and at the same time, did not carry out a large-scale foreign investment , then why still raise funds? Why is it still raising money? Borrowing money is to interest, it is difficult not to spend interest to borrow money back to watch?

The content of the financial report is very broad, if you can only pick a few subjects to look at, then I would choose a few of the above. But to understand a company more comprehensively, more than just look at the performance of a financial indicator, but should be more than one financial indicator to verify each other , if there is a logic does not make sense, it shows that the report may have some hidden cat.

The financial report is used to exclude companies, so first look at the balance sheet.

There are abnormalities such as the following to give up directly:

1, accounts receivable accounts accounted for too much

Earned is "fake money", the book profits look good, but pay for goods or services, recovered a bunch of white strips, which indicates that in the industry chain is in a disadvantaged position, but also may indicate that the enterprise operation is very aggressive risk, as well as the possibility that the business is not a good idea, but also the possibility that the company is not a good idea. Aggressive risk is very large, there may be enterprises to the channel pressure goods deliberately caused by false prosperity. All of the above, basically excluded. Think of Sichuan Changhong is more than 4 billion accounts receivable a knockdown.

2, big savings and big loans

There is a lot of money on the books, but then borrowed a lot of money from the bank, it is not normal. Things must be evil, usually directly excluded.

3, data anomalies

Turnover, inventory, construction in progress and other data compared with the industry, there are obvious differences. At this time to be cautious, the most important financial principle is to match, where it does not match, to ask why? If you can't figure out why this is the case, just rule it out.

Companies with good, solid balance sheets can move on to the next step.

For example, what are the profit margins? Generally speaking companies with too low margins are not invested in, the business model is too bitter and it is tough to make money.

For example, how is the main business growth? If the business is not growing or even declining, we will not invest in it. We only work with companies that can grow and create value.

For example, the need to constantly update the equipment, depreciation and amortization is very large not to invest. We want inexhaustible cash flow, not a bunch of machines and equipment.

Do not invest in companies where the return on equity is too low, for example, where we can demand a roe of 15 or more all year round. Over a long period of time, the return on your investment in a business is equal to the long-term return on equity of the business.

The main observations are the above, but to emphasize that, look at the financial data can not be stagnant only look at the financial, in fact, each industry has its own characteristics, presenting the financial characteristics of the different, from the characteristics of business operations, and then measured against competitors in the same industry, in order to draw the right conclusions.

All kinds of data are available in the financial report, different people look at different data in the financial report, in order to China Merchants Bank shares, for example,

There are quarterly reports, mid-year reports, annual reports

Mainly the first few for reference.

Financial data is only one aspect, there are other data, the market trend, social news related reports, big data and so on.

What are the main indicators to look at in the financial report?

Not a big bull. Simply say some of my practice, for reference:

First, the income statement. Mainly look at the total operating income and net profit increase or decrease, calculate the gross profit margin, net profit margin, core profit (later), and compared with the same period. From there, analyze whether the company's production and operation and profitability is normal and effective, as well as the competitiveness of the product market and the level of core profits.

Second, the balance sheet. 1. Compare the total assets and liabilities total with the same period there is no excessive change. Estimate the gearing ratio. Normal gearing ratio to calculate the average number of assets occupied, more trouble. Here you can use the closing number or one-half of the sum of the beginning and the end of the period instead. See if the liabilities are reasonable. Theoretically, industrial enterprises should not exceed the 70% warning line. 2. Calculate the current ratio, the formula is: total current assets ÷ total liquidity responsible. The ratio should be greater than 1. 3. Check the change of accounts receivable and prepayment with the same period to see if there is any abnormal change, and compare this with accounts payable and prepayment. Analyze the reasonableness of accounts receivable and the marketability of the company's products.

Third, the cash flow statement. Mainly look at the net cash flow from operating activities. The data and the income statement operating profit for a rough (accurate should be used core profit, later) comparison, the data is greater than or close to the operating profit, said the profit from operating activities is supported by cash flow of real money. If the difference is very large or even negative, it shows that the products sold are a credit, did not receive cash, profits are watered down, unsustainable.

Fourth, calculate the return on net assets. The net profit on the income statement divided by the net assets on the balance sheet (owners' equity) to calculate the return on net assets. To determine the profitability of the company's capital. This indicator is the most important indicator of a company and can be compared horizontally with all companies in different industries, as well as with bank deposit rates and treasury rates. to judge its profitability. The higher the indicator, the better. If it is lower than the national debt, it is a micro-profit enterprises, is not invested.

V. Calculate core profits. Calculated according to the data on the income statement. The formula is: core profit = gross profit - three expenses - business taxes and surcharges. (The three expenses include selling expenses, administrative expenses, financial expenses). The net cash flow from operating activities divided by this core profit, the ratio of 1.2-1.5 is more appropriate.

Seven, the establishment of dynamic analysis table. For a small number of key items, indicators such as total turnover, net profit, gross profit margin, core profit, accounts receivable, gearing, operating cash by flow and other lists, trend analysis. The statement has two years of data for the current year and the previous year, which should be used as a basis for adding the same data for the previous years and accumulating them year by year. It is better to have five years, at least three. Data on several years of continuous dynamic comparison, you can more effectively on the data to determine the reasonableness or not.

Eight, the use of audit reports. Audit report is the company's financial report is true and lawful certificate, should be effectively utilized. There are five types of audit reports, as long as it is not the first unqualified opinion, the other four types of all the explanations, explanatory paragraphs of the content should be reviewed, and combined with the financial report, especially the accompanying information to find out the truth.

If you want to choose a stock to invest in, the above analysis and research is the minimum, prudent, but also through the National Bureau of Statistics, the Development and Reform Commission and other websites to understand the relevant macroeconomic development trends, policies, industrial development stage, prospects, through the board of directors report on the company's executives and development strategies. If necessary, we also need to conduct on-site investigations and inspections. For stocks that are already held, or only need to know the general situation, then use the previous steps to simplify a little bit can also be.

You just pretend that you are the mother-in-law and this company is your future son-in-law.

Then, from the company's financial results, you can see whether this son-in-law is worth letting you marry your daughter to him.

First of all, it must be asked: young man, there is no house, there is no car ah?

The young man said: there is a house, paid 1 million down payment, to pay 2 million loans. The first thing you need to do is to get your hands on a new car.

This corresponds to the balance sheet of the company.

This is a random balance sheet found online, the left side is the total assets, there are a lot of sub-divisions, just like people, there is a house, a car, and all kinds of things to buy, and of course, there is cash corresponding to the money funds inside.

Liabilities, like this son-in-law from the bank loan, corresponds to the right side of all kinds of items.

You as a mother-in-law look, satisfied, young man has a house and a car, although still have to pay the mortgage, but still quite good.

Of course, still have to continue to ask ah: young man is now doing what work, how much monthly salary ah, every month can save how much money na?

Although he has a house and a car, in case he is a jobless youth, it is not good to sit and eat, right?

This corresponds to the income statement.

Still looking for an income statement on the Internet, the top is the company's operating income, minus all kinds of operating costs, that is, the rest of the net profit, just like how much he paid each month, minus mortgage, utilities, property, food, drink, and save the money. The more money he saves, the more assured you are as a mother-in-law to marry your daughter to him, right?

With a house and a car and a job, you as a mother-in-law must also be very satisfied, right? Then now come to talk about the bride price. How much money can the young man actually come up with?

This corresponds to the company's cash flow statement.

Finally, it's time for the exhaustive "bride price" program. Now that you're the mother-in-law, you have to see how much the young man can get out of the bride price. （

Why do we have to look at the cash flow statement? It is not because the company bragged too much, opening is tens of billions of dollars of projects, but the wave faded, it turned out to be in the naked swimming.

The cash flow statement is used to see how much money on your account in the flow, how much to spend out, how much to recover. Don't open your mouth is tens of billions of project bluff ah.

After reading this, you can almost rest assured. This young man has a house and a car, a monthly income of several tens of thousands of dollars, and a lot of savings. It is a one in a million, rare good guy. I'm not sure if I'm going to be able to do that, but I'm sure I'm going to be able to do it.

The company's financial statements should be as strict as the mother-in-law's son-in-law, although sometimes it is very troublesome, but it is closely related to the money, have to be careful.

What do you look for in a financial report?

I was working as an assistant to the president of the group, every month, every six months or every year will write a data analysis report to the group president, not only to analyze the financial data, but also to look at the operational data. These data are the results of past events performance, from which some problems will be exposed, but also to find some laws, today to share their experience.

First, look at the completion of the indicators. This includes half a year and the annual completion of the company's indicators.

Indicator completion data is a reflection of the results of the implementation of the company's management and operational work. Including: profit, main business income, gross profit, costs, inventory, accounts receivable, accounts payable, cash flow and other related data. Mainly through the comparison of each indicator with the same period last year, the change of data in the last three years, the data comparison relationship between the indicators. There are vertical data comparison and horizontal data comparison. Through a series of data changes, find the problem. For example: profit did not complete the corporate objectives, down 10% from last year, inventory increased by 20% compared to the same period last year, the library sales ratio increased by 20% last year, meaning that the company's product development, sales and capital turnover will be under great pressure later.

Second, the income statement

This is a very important factor for a business. A business without profitability cannot survive. If the operating margin of the business has been maintained at a relatively high level, it shows that the business continues to maintain the ability to make money and is worth investing in.

Third, the cash flow statement

This is actually more important than profit. Many companies book profit is positive, but no cash, such a business can not support for a long time. As long as the capital chain is broken, that is to say, there is no money, then there is no guarantee that the normal operation of the enterprise. Can't invest in product development, can't guarantee the channel construction, then the enterprise can't survive. As long as the enterprise has money, then there is a chance to rise again, if a company's profit value and then look good, is no money will soon fall.

Fourth, the balance sheet

The existence of an enterprise's assets, liabilities will reflect a business is a healthy business. For example: if the enterprise inventory is too large, occupying a large amount of assets, the enterprise capital operations have a great impact. Reducing the price to deal with inventory directly affects the profitability of the enterprise. Inventory backlog will lead to poor capital turnover of the enterprise. Enterprise bank deposits in the loan amount is large, and the main business income of the enterprise does not match, then this enterprise is also very dangerous.

Whether an enterprise is benign and healthy development, the main thing is to look at the changes in the data of the enterprise indicators, look at their growth rates, especially the growth rate of profits, the growth rate of the main business, the growth rate of net assets, the growth rate of market share, inventory turnover, accounts receivable rate and so on. These are the basic enterprise operation data to ensure that the enterprise can operate normally. And the enterprise new product development investment and other indicators of data can reflect the pattern of entrepreneurs and the potential for future development of the enterprise.