Financial Statements

Financial statements are a type of financial information that listed companies regularly disclose to investors and regulators. It reflects the company's operating conditions, financial status and cash flow, and is an important basis for investors to analyze the company's value and future development.

Stock market financial statements mainly include the following parts:

Balance sheet: Shows the company's assets, liabilities and owner's equity on a specific date, reflecting the company's financial structure and solvency.

Income statement: shows the company's revenue, expenses and profits during a specific period, reflecting the company's profitability and efficiency.

Cash flow statement: shows the company's cash receipts and expenditures during a specific period, reflecting the company's cash liquidity and the impact of operating activities, investing activities and financing activities on cash flow.

Statement of changes in owner's equity: shows the changes in the company's owner's equity during a specific period, reflecting the impact of the company's changes in equity, profit distribution, other comprehensive income and other items on the owner's equity.

Notes: Supplementary explanations of important items in the financial statements, including accounting policies, accounting estimates, important matters, risk warnings, etc.

How to analyze stocks through financial statements?

Analyzing stocks through financial statements mainly uses some financial ratios and indicators to conduct a comprehensive evaluation of the company's financial status, profitability, growth, solvency, cash flow, etc. Commonly used financial ratios and indicators fall into the following categories:

Price-to-earnings ratio (PE): Indicates the ratio of the price per share to earnings per share (EPS), which reflects investors' expectations for the company's future earnings. Generally speaking, the higher the P/E ratio, the more optimistic investors are about the company's future profitability, but it also means the greater the investment risk; the lower the P/E ratio, the more optimistic investors are about the company's future profitability, but it also means the greater the investment opportunities. big.

Price-to-book ratio (PB): represents the ratio of the price per share to the net assets per share (BPS), reflecting investors' recognition of the company's net asset value. Generally speaking, the higher the price-to-book ratio, it means that investors are more optimistic about the company's net asset value, but it also means the greater the investment premium; the lower the price-to-book ratio, it means that investors are more optimistic about the company's net asset value, but it also means that the investment premium is higher. This means that the investment discount is greater.

Price-to-sales ratio (PS): Indicates the ratio of the price per share to operating income per share (SPS), reflecting investors' assessment of the company's operating income scale and growth rate. Generally speaking, the higher the price-to-sales ratio, the more optimistic investors are about the company's operating income growth potential, but it also means the greater the investment risk; the lower the price-to-sales ratio, the more optimistic investors are about the company's operating income growth potential, but It also means greater investment opportunities.

Net profit margin (NPM): Indicates the ratio of the company's net profit to operating income, reflecting the company's profitability efficiency and level. Generally speaking, the higher the net profit margin, the stronger the company's profitability, but it also means that the company's cost control and risk management capabilities are stronger; the lower the net profit margin, the weaker the company's profitability, but it also means that The weaker the company's cost control and risk management capabilities.

Gross profit margin (GPM): Indicates the ratio of the company's gross profit to operating income, reflecting the added value and competitiveness of the company's products or services. Generally speaking, the higher the gross profit margin, the higher the added value of the company's products or services, but it also means the higher the company's pricing power and market share; the lower the gross profit margin, the higher the added value of the company's products or services. The lower it is, the lower the company's pricing power and market share are.

Debt-to-asset ratio (DAR): Indicates the ratio of a company's total liabilities to its total assets, reflecting the company's financial leverage and debt repayment pressure. Generally speaking, the higher the asset-liability ratio, the greater the company's financial leverage, but it also means the company's greater debt repayment pressure and financial risks; the lower the asset-liability ratio, the smaller the company's financial leverage, but it also means The smaller the company's debt repayment pressure and financial risks.

Current ratio (CR): Indicates the ratio of a company's current assets to its current liabilities, reflecting the company's short-term solvency and liquidity. Generally speaking, the higher the current ratio, the stronger the company's short-term solvency and liquidity, but it also means the lower the company's capital use efficiency; the lower the current ratio, the stronger the company's short-term solvency and liquidity. Weak, but it also means that the company's capital usage is more efficient.

Quick Ratio (QR): Indicates the ratio of a company's quick assets to its current liabilities, reflecting the company's short-term solvency and liquidity after removing inventory. Generally speaking, the higher the quick ratio, the stronger the company's short-term solvency and liquidity after removing inventory, but it also means the lower the company's inventory management efficiency; the lower the quick ratio, the stronger the company's short-term solvency and liquidity after removing inventory. The weaker the short-term solvency and liquidity, the more efficient the company's inventory management is.

Cash flow ratio (CFR): Indicates the ratio of net cash flow generated by a company's operating activities to its current liabilities, reflecting the company's ability to use cash to pay short-term debt. Generally speaking, the higher the cash flow ratio, the stronger the company's ability to pay short-term debts with cash, but it also means that the company generates more net cash flow from operating activities; the lower the cash flow ratio, the company uses cash to pay short-term debts. The weaker the ability, it also means that the company's operating activities generate less net cash flow.