What Does Depend on Stock Buy or Sell?
What Does Depend on Stock Buy or Sell? : Stocks Buy Or Sell depend on many factors but some important factor MoneyPip describe in this article so read carefully.
Profit Or Revenues,which is More Important?
This is the ultimate dilemma for most investors at least lay investors what should they be focusing on profit growth of a company or revenue growth of a company. In assessing this the one thing to understand is that the declared profit after tax net profit or pact as it is called is often what the management wants to show and a p80 number can be tweaked to a large extent at least to some extent by the management depending on what it wants to convey to investors.
This can be done in a whole host of ways so bad as this says often an opinion from the management on what the inherent profitability is revenues are far more difficult to tweak sales or sales I mean there you cannot fudge them unless you want to do something completely illegal.
Therefore often it is important to look at the pad number it’s not irrelevant but to also set a very high degree of importance on what the revenue number is because the revenue number gives you a fairly or a better indicator of the underlying strength of the best business and the growth in the business and in addition to all of this one should keep an idea on the EBIT numbers or the EBITA numbers which is the operating profit.
which is a little bit more difficult to tweak than the profit after tax and therefore it gives you a sense of the intrinsic profitability pattern of the business which the company that you’re trying to buy belongs to.
Should You buy or Sell a Stock Based on a Single Quarter’s Number?
This is a mistake which a lot of investors make that they take an investment call based on a single quarters number good or bad that is a dangerous trap.
Ideally for long-term investors they should keep an eye on profitability pattern over a period of time look at the last two years or three years performance of the company. What is the growth trajectory how is the company delivering on various financial parameters over a period of time.
That gives you a much better sense of the quality of the business rather than a single quarters numbers a single corners numbers can be very good for some reason but it may not sustain. A single quarters numbers can equally be very bad because of a factor which has just cropped up a non-recurring factor and therefore you should be very careful about basing investment decisions on a single quarter.
Look at the trajectory is the company’s sales reject eree x percent over a two-year three-year period is the company’s Ebita margin profile consistent at a certain level over a two or three year period.
Sometimes trajectories over a period of time gives you a much better sense of the quality of the business and that is what investors should keep in mind while choosing an investment.
Besides the Income Statement, Which are other Important Metrics to keep an eye On?
The income statement is always very important because it gives you a sense of performance and growth of the company, however it is important and difficult this one is difficult for lay investors to determine is that.
What is the underlying balance sheet strength of the company because sometimes the company can show fairly impressive income statements but there is a huge amount of debt either at the company level or at the group level or at the promoter level, which is getting masked by the numbers.
So therefore one must look at the balance sheet as much as one can it’s not as easy as looking at declared Pat or sales numbers but one must make an effort to look at simple ratios like debt equity ratios the absolute number of debt declared by the company.
The interest coverage ratio which tells you what the whether the profits of the company cash profits or operating profit of the company enough to pay back the quarterly interest rate or the annual interest rate that the company has to pay because of the debt.
So other than issues like profit sales even over a period of time one must assess the balance sheet strength of the company because often good companies are undone by the ambitious aggression in their balance sheets and that is something which can lead to serious under performance in stocks where even reported profitability is strong.
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