How can I found out if looking at a company's financial statements if they are improving after a recession?
margins margins margins. You don't have to sell a ton of goods if your margins are killing everybody else. Next question what are good margins? A: It depends. You my friend are opening up a can of worms. Have fun and realize this....all fundamental data is discounted and reflected in the price of a stock. Trying to attach an intrinsic value to a company and then hoping the market accepts this is just that......hoping. Much better (for me) is monitoring market conditions and buying the best/leader (highest P/E's, P/S etc) companies when everyone else is scared. Always sell too early and aim for 3:1 reward to risk. You can go broke for two reasons: Taking profits when you haven't given it a chance to hit 3:1 and riding a stock down. Always always cut your losses short. It keeps you from having to sit through drawdowns/hoping syndrome. I'll say it again the problem with fundamental analysis comes from the trade looking better and better as your getting crushed. Enron's P/E was in the single digits and analysts were saying it was a generational trade. Pull up Jim Cramer telling no one to panic while Lehman is crashing, "Lehman Bros are fine. Do not sell" The point is he is an ex-hedgie, CNBC anchor, Mad Money author/personality and an ex-Goldman Sachs partner (don't quote me on the partner part). He has access to the best/most information and if he can't know that Lehman is going out of business NO ONE can. I'm done and I noticed you didn't ask about the market but hey it's always good to know. "If you're going to panic, it's best to panic early".
That's a very strange response. It seems to focus on the (very nebulous) relation of a firm's publicly traded stock price to its profitability. But the question said nothing about stock price.
jmersh, the crucial thing on a company's financial statement is "net profit". If that is increasing from one period to another, then the company is improving.
(And, this question really has nothing to do with mathematics.)
Hi HOI. I want to thank you for your help with my previous math questions. I have learned a lot.
On to the subject at hand. You are correct profits are a "bottom line" way of measuring but if you read his question it states after a recession. There are two issues with profits being the true measuring stick of improvement after a recession. 1) Profits can be manipulated by depreciation and amortization which is fancy talk for accounting tricks. 2) Profits are a product of other drivers mainly revenues/sales and how much it costs to make these goods ie margins as mentioned. During a recession there is a compression of profits and reduction of inventories and on and on and on............ but if you are controlling the costs of these goods you can "predict" (another can of worms) the net profit of the company when revenues/sales reach the middle stage of the business cycle. If your cost of goods are lower than the competition you can be sure that your profits will be following assuming proper demand (and that is a giant assumption). And yes it has do with mathematics because what we are talking about are ratios ie sales - cost of goods / sales. You were correct the stock market was tangential in nature but I mentioned that in my response.The publicly traded price, on aggregate, is a very good way of measuring the profitability of a company. There are no good cheap companies. Often times there is a divergence between current price and "intrinsic value of a company" but on aggregate it is. Bottom line is that improving/great margins = getting ready to make lots of money.