I am wondering if there are only a few values that we need to look at in terms of financials for a potential business we are considering for investment.
My point is, there are many ratios and values that we can consider eg increasing EPS, growing revenue, ROA , Debt to Cash flow Ratio, PE, PB, and many other ratios.
Do we have to look through every single one of them and make sure they are satisfied?
From what I have learnt, I will focus on business and management first, then financial will usually be good. But even so, coming to financial quadrant, there are so many values to consider and it is tough to make sense naturally to us who does not do accounting or related specialization.
So, are there only a few values that we need to look at to determine if the financial are good? or simply only a few values that are important to make sure that we are looking at a good and sound business model?
You are right that we should focus on business and management more than financial numbers.
As what Jieren had mentioned “The numbers tell us a more realistic story on what is going on behind”
As much as we want to focus a lot on business and management, we still need to numbers to justify whether the management telling the truth.
You don;t have to look at every numbers, just have to focus on the important one such as:
Revenue growth, Net profit growth, Gross Profit Margin, Net Profit Margin, Debt Level (how are they managing it), Cash Conversion Cycle, Cash Flow, Cash Level, ROE, ROA, Quality of Income
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