A comprehensive collection of 25 professional knowledge for business valuation and financial analysis! (good article)

A comprehensive collection of 25 professional knowledge for business valuation and financial analysis! (Good article) Valuing a company，The first thing you need to prepare is：5The company’s annual report since the year (if the data is less than 5 years old，How many years can I get it?，For example, I gave the example of Great Wall Motors A-shares，2011Listed in year，So I only prepared 2 years of annual reports) 3 quarterly reports of this company in the most recent year。and the latest annual reports of several other representative companies in its industry。

Then，Through the analysis of historical data，See the "cash" of selected companies、"income"、What’s really going on in the four areas of “Growth” and “Financial Health”。at last，Comparisons between peer companies，Confirm industry position of selected company。What needs to be understood is that：Historical data is just history after all，it does not represent all，The reason is simple：Now corrupted，May be repeated in the future；Now favored，may decline in the future。

(From Benjamin Graham's "Securities Analysis") (The data in this summary are from Great Wall Motors' 2011-2012 annual report，Great Wall Motors 2012 Q1-Q3 Financial Report，and SAIC、Jianghuai Automobile、BYD and Jiangling Motors 2012 Annual Report。

) Table of Contents 1、Cash is

1. Free Cash Flow (FCF)
2. Operating Cash Flow (OFC)
3. Price to Cash Ratio (PCF)
4. Cash Conversion Period (CCC) II、Profitability
5. Gross operating profit margin (GrossMargin)
6. Net sales profit margin (NetProfitMargin)
7. AssetTurnover
8. Return on Assets (ROA)
9. Asset-to-EquityRatio
10. Return on Equity (ROE)
11. Return on invested capital (ROIC)
12. DividendYieldRatio
13. Price to Sales Ratio (PS) Three、Growth
14. RevenueGrowthRate
15. Net profit growth rate (NetProfitGrowthRate)
16. Earnings per share (EPS)
17. Price to earnings ratio (PE)
18. PEG (Price to Earnings Ratio to Earnings Growth Ratio)
19. (EPS Growth + Dividend Yield)/P/E Ratio Four、financial health
20. Debt-to-AssetRatio
21. Debt-to-EquityRatio
22. Current Ratio
23. Quick Ratio (QuickRatio)
24. Inventory a. Inventory increase or decrease rate b. Inventory conversion rate 1 Cash is
25. Free Cash Flow (FCF) ▍About FCFa.FCF refers to the amount of money a company can withdraw each year without damaging its core business。

b. If a company’s FCF is 5% or more of revenue，You've found the money printing press。c. Many companies in the early stages of rapid expansion，FCF is negative (like Starbucks、The early days of Home Depot)。At this time, you need to constantly confirm from various sources of information.：Does this company use every penny it earns to make money instead of doing other things?。

▍Data analysis a. By comparison，We have seen that the FCF of several other car companies with different qualities is not negative.，So it can be concluded：FCF is not always negative in the automotive industry。b. Investigate the reasons，On the one hand, operating cash flow has

1. 51%reduction，on the other hand，Capital expenditure (purchase and construction of fixed assets、cash payments for intangible assets and other long-term assets) and
2. 24%increase。

c. Operating cash flow aspects，Dive into the "Consolidated Cash Flow Statement" to view various contents，All fall within the normal range of increase and decrease。Capital expenditure，in annual report，We can see companies purchasing new equipment、land、Factory building，Prepare for expansion。2、Operating cash flow (OFC) ▍About OFCa. Operating cash flow refers to “direct production of products”、Cash flow generated from activities such as sales of goods or provision of services”。

b. Personally, I think it’s understandable that FCF is negative.，But it’s more troublesome if OFC is a negative number.。Companies with negative operating cash flow，will eventually have to seek additional financing through the issuance of bonds or shares。do this，Not only does it increase the company’s operating risks,，also diluted shareholders' equity。c. For companies with negative OFC，To check whether its accounts receivable have increased significantly。

If receivables increase significantly，Even exceeded the sales growth，The company is likely to fall into a passive state of being unable to make ends meet.，Be wary of the risk of a broken capital chain。▍Data analysis a. By comparison，we can see，The increase or decrease in OFC in the automotive industry is not stable，Great Wall's 2.51% year-on-year decrease is completely within a reasonable range。

b. Go deep into the "Consolidated Cash Flow Statement" to view the specific content of OFC，It was found that "salaries" and "taxes and fees" were the two areas with larger year-on-year growth rates.。More employees and taxes support higher sales，within reason。3、Price to cash ratio (PCF) = stock price/cash flow per share ▍About the market to cash ratio a. The price to cash ratio can be used to evaluate the price level and risk level of a stock.。

b.The smaller the market rate is，Indicates that the greater the increase in cash per share of a listed company，The less operating pressure。c. A high P/C ratio means a company is trading at a high price，But it doesn't generate enough cash flow to support its high stock price。d. Opposite，A small P/C ratio proves that the company is generating ample cash，But the cash has yet to be reflected in its share price。

▍Data analysis through comparison，we can see，Great Wall’s price-to-performance ratio is not optimistic，But for a rapidly expanding enterprise,，I think it's reasonable。4、Cash Conversion Period (CCC) ▍About CCCa. CCC measures how quickly a company can turn cash on hand into more cash.。b.The details of CCC calculation are complicated，I have been “sharing knowledge：Cash Conversion Period (CCC)" listed in the post。

c.CCC if it is negative，It shows that the transfer days for inventory and accounts receivable are very short.，The number of days of deferral of accounts payable is very long，The company can control the amount of working capital to a minimum。d.CCC is often used to compare companies in the same industry。▍Data analysis a. Since Great Wall’s 2011 annual report did not mention the opening data of 2010，So I only listed two years of CCC。

b. By comparing，we can see，The cash conversion period in the automotive industry is very short，That is to say，These companies don’t have to invest their own money，It can be operated with money from dealers and suppliers，This is a reflection of the high efficiency of capital operation.。This is related to the just-in-time business model of the entire automotive industry.。

2Profitability 1、Operating gross profit margin (GrossMargin) ▍About gross profit margin a. What you want to see is a stellar and stable gross profit margin。b. Revenue and gross profit margin fluctuate up and down，represents two things：① This company is in an unstable industry ② It is being attacked by competitors for survival ▍Data analysis a. By observing Great Wall’s 3-year data，we can see，Great Wall's gross profit margin is stable and increasing。

b. Investigate the reasons，mentioned in the annual report，Mainly due to "mainly due to changes in product structure，And the economies of scale brought about by sales growth are reflected.”。c. By comparing with other companies，we can see，Great Wall's gross profit margin is relatively high among its peers.。

1. Net sales profit margin (NetProfitMargin)▍About the net sales profit margin a. While the company is expanding sales，Due to the increase of three fees，Net profit does not necessarily increase proportionally。The net sales profit margin can exactly reflect "the proportion of net profit brought by sales revenue"。b. If the net sales interest rate is 10%，Then for every 1 yuan of goods sold by this company,，Just 1 cent is the net profit。

▍Data analysis a. By observing 3 years of data from the Great Wall，we can see，Great Wall's net sales profit margin is relatively stable。b. By comparing with other companies，We can see that the Great Wall is among the peers，Have a high level of net sales profit margin。

1. Asset Turnover (Asset Turnover) ▍About asset turnover a. Asset turnover reflects the operating period of the enterprise，The flow rate of all assets from input to output，Reflects the management quality and utilization efficiency of all assets of the enterprise。b. The higher the value，It shows that the faster the total assets of the enterprise transfer，The stronger your sales ability。▍Data analysis a. By comparison，we can see，The asset conversion rate in the automotive industry is generally very high。

This is still related to its "just-in-time production" business model。b. Great Wall ranks among its competitors，It can only be considered a lower than average level.。4、Return on assets (ROA) ▍About ROAa. Similar to net sales profit margin，ROA tells us how much profit a company's assets can generate。b.If ROA=10%，Then every 1 yuan of assets of this company，Just 1 cent is the net profit。

▍Data analysis a. For companies other than Great Wall and Jiangling，We can clearly see the low net sales profit margin，dragged down the final ROA。b.At the same time，by comparison，We can also see，Great Wall's ROA is at a high level among peers。

1. Please Asset-to-Equity Ratio (Asset-to-EquityRatio) ▍About the Asset-to-Equity Ratio a. The Asset-to-Equity Ratio is used to reflect the degree of a company's liabilities relative to its owners' equity.，Measures solvency。b. If a company belongs to a periodic industry or has unstable earnings，And it has an excessively high equity ratio，Stay alert!

Because "total assets = shareholders' equity + liabilities"，If shareholders' equity is very small，That means the debt will be high。▍Data analysis a. By comparison，We can see that the asset equity ratio in the automobile industry is generally not low (usually when the ratio is lower than 1，We call it low)。b. Although Great Wall’s asset-to-equity ratio is not low,，But it is not high among peers。

1. Return on Equity (ROE) ▍About ROEa.ROE measures the profit generated by shareholders’ capital。b.Another way to calculate ROE is：Return on equity = net profit/shareholders’ equity c. If ROE = 10%，So as a shareholder，Every 1 yuan you invest，The company will generate a net profit of 1 cent。

d. If a non-financial company，5There were 4 years in which the return on net assets could not be achieved above 10%.，it's not worth your time。e. For companies that use a lot of financial leverage，15%The return on equity is the minimum standard for selecting high-quality companies.。▍Data analysis a. By observing 3 years of data from the Great Wall，we can see，Great Wall's ROE has been maintained at a very high level。

b. By comparing with companies in the same industry，we can see，Great Wall's ROE is also considered to be at a relatively high level in the industry.。7、Return on invested capital (ROIC) ▍About ROICa.ROIC is used to measure the rate of return on which a company allocates its resources to invest.。b. If a company’s ROIC has remained above 25% for several years，We can tell right away：This is a company worth tracking。

c. Opposite，If a company’s ROIC is consistently below 10%，We can also immediately tell that this is a mediocre company。d. Details about calculations，I have been “sharing knowledge：How to calculate return on invested capital (ROIC)" is listed in detail in the post。

▍Data analysis a. Because I think this data does not necessarily need to be compared among peers.，In addition, the calculation process is too complicated，So I'm lazy，No analysis of the other four companies was done。b.At the same time，Since Great Wall’s 2011 annual report did not mention any data up to the beginning of 2010,，So I only took two years of data。c.Although the comparability is not strong，But it can be seen that Great Wall’s ROIC is not only improving，still maintained at a high level。

1. Dividend Yield Ratio (DividendYieldRatio) ▍About Dividend Yield a. Dividend rate is an important reference criterion for selecting income stocks，If the annual dividend rate for many consecutive years exceeds the 1-year bank deposit interest rate，Then this stock can basically be regarded as an income stock.。▍Data analysis a. By comparison，We can see that Great Wall's dividend yield is considered to be at the middle level of the industry.。
2. Price-to-sales ratio (P/S) = stock price/revenue per share ▍About the price-to-sales ratio a. Use this indicator to select stocks，It seems reasonable to take out those P/E ratios，But its main business has no core competitiveness and mainly relies on non-recurring gains and losses to increase profits.。b. Since sales are usually more stable than net profit，The price-to-sales ratio only considers sales，The price-to-sales ratio is very suitable for measuring companies whose net profits vary widely from year to year.。

c. A high price-to-sales ratio means that the market has more expectations for the company's profitability and growth.，A low price-to-sales ratio means investors are paying very little for each dollar of sales the company makes.。d. Price-to-sales ratios are usually only compared within the same industry.，And it's often used to measure companies with very poor performance，Because they usually don’t have a P/E ratio to refer to。

▍Data analysis a. By comparison，We can see that Great Wall’s price-to-sales ratio is very high among its peers.，But this is easy to understand，due to high growth，The price you pay per dollar of sales will definitely not be low.。3Growth 1、Revenue Growth Rate (RevenueGrowthRate) ▍About revenue growth rate a. What you want to see is a stable revenue growth rate。b. A company wants to increase its profits，There are many ways。

But whether it's cutting costs or reducing advertising, etc.，They are all just temporary measures，Factors that can ultimately support the company in increasing profits in the long term，Is it an increase in sales?。

c. A company wants to increase its sales，There are 4 methods in total：① Sell more products or services ② Increase prices ③ Sell new products or services ④ Acquire other companies d. In O'Neil's CANSLIM theory，The quarterly sales of bull stocks should also increase by at least 25% (year-on-year)，or，Sales continued to rise over the past three quarters (quarter-on-quarter)。

▍Data analysis a. Through Great Wall’s annual and quarterly growth rate data，we can see，Great Wall's sales growth is very strong。b. By comparing，We can also see that Great Wall is almost unique in the industry.。2、Net profit growth rate (NetProfitGrowthRate) ▍About net profit growth rate a. If net profit increases by 20%，Earnings per share only increased 5%，Forget about such a company。

b. If a company’s profits include non-recurring profits from real estate sales and similar activities，Then this part of the income should be removed from the report，Because this kind of profit is one-time。c. Just control the net profit growth rate at 25%-30%。Faced with excessively high growth rates，You first need to analyze its composition，Then you must ask yourself：Will it be able to maintain such high growth in the coming year? otherwise，By then, everyone’s expectations for it will immediately drop.。

▍Data analysis a. Great Wall’s net profit growth rate is on the high side，After analyzing the reasons behind it，Mainly driven by sales，rather than other one-time profits。But many people，including me，Everyone has raised questions about whether the Great Wall can maintain such high growth.。therefore，We need to constantly keep an eye on whether the Great Wall lives up to its intended purpose，Launched new cars as scheduled to enrich product line，Also pay attention to its domestic and overseas sales growth each quarter。

b. At present, Great Wall’s net profit growth rate exceeds the level of its peers by a large margin.，But always keep a skeptical attitude，We must also understand the principle that things must be reversed when they reach their extremes。3、Earnings per share (EPS) ▍About EPSa. In O’Neil’s CANSLIM theory，The EPS of bull stocks should have increased by 25% or more in each of the past three years.。

b.In some cases，It’s okay to have a drop in earnings in one of the years，But it must be ensured that the profits in subsequent years can recover the lost ground.，and rise to a new level。c. Also in the above theory，EPS in recent quarters should also rise by at least 18%-20%，25%-30%better，In short，The higher the better。▍Data analysis：a. Great Wall’s EPS has been rising strongly every year，The same goes for quarterly EPS。

b. Through the previous analysis，I think this data is less meaningful when compared with the industry.，just not listed。4、Price-to-earnings ratio (PE) ▍About the price-to-earnings ratio a. In Peter Lynch's "Six Types of Companies" theory，Slow-growth companies have the lowest stock PEs，The stocks of fast-growing companies have the highest PE，The PE of futures company stocks is between the two。

b. Some investors who specialize in looking for bargains believe that，No matter what stock，As long as its PE is low, you should buy it，But this investment strategy is not correct，There are many other aspects to consider。c. Remember：Reasonably priced company，PE≈Earnings growth rate (i.e. EPS growth rate)。If PE<收益增长率，那么你可能为自己找到了一直被低估的好股票。 ▍数据分析a.长城的PE低于EPS增长率3倍左右，由此证明它是一只被低估的好股票。b.但是需要强调的有2点：①汽车行业的平均PE并不高②小心当它无法延续高增长时，PE会近一步下降，股价将有可能迎接戴维斯双杀（就像它的前辈们一样）。

1. PEG (price-to-earnings ratio relative to earnings growth ratio) ▍About PEGa.PE is low，A typical feature of fast-growing companies is that their PEG will be very low.。b. Investors usually believe that，Only stocks with a PEG lower than 1 can be considered a good investment target.，And lower is better (even lower than
2. 5）。However, some investors say，
3. 7-
4. 8PEG stocks in range are best for investing。

c. Since the net profit growth rate cannot be guaranteed to be stable，I suggest taking the average，Then calculate the current PEG。But this situation does not include companies that have experienced extreme values.，It’s not good to use the average。6、(Earnings per share growth rate + dividend yield)/P/E ratio ▍About this indicator a. This is an indicator proposed by Lynch when talking about the P/E ratio，What is measured is the relationship between the sum of EPS and PE。

b.When its result is greater than 2，Stocks have extremely high investment value；between 1 and 2，The stock is not bad；When less than 1，Stock investment value is not high。

4financial health1、Debt-to-AssetRatio ▍About the debt-to-asset ratio a. Some investors say that the ratio is not greater than 30%.，if it is greater than 50%，Then the investment risk of this enterprise will be very high，Because once the capital chain is broken,，Too high a debt ratio means bankruptcy。

(Not applicable to bank stocks) b. For any kind of liability，Appropriate amounts can boost profits，But too much debt can lead to disaster。▍Data analysis a. By comparison，We can see that the asset-liability ratio of the automobile industry is generally 50%。b. Different from other car companies that have long-term and short-term borrowings，Great Wall does not have any borrowings。After independently reviewing Great Wall’s liabilities,，I found that Great Wall’s largest liabilities are accounts payable and notes。

This also explains that the CCC of the Great Wall is negative.，Accounts payable days are very long。2、Debt-to-EquityRatio ▍About debt-to-equity ratio a. The debt-to-equity ratio reflects the capital structure in the balance sheet，Shows the degree of financial leverage utilized。It is actually another silhouette of the asset-liability ratio。

b. Usually a lower debt-to-equity ratio proves that the company’s safety factor is high，But if it is too low, it will appear that the company has poor capital operation capabilities.。▍Data analysis a. By observing 3 years of data from the Great Wall，We can see that Great Wall’s debt-to-equity ratio is gradually declining.，and stabilize around 1。b. By comparing，We can also see that Great Wall’s debt-to-equity ratio is not high among the same industry.。

1. Current Ratio (CurrentRatio) ▍About the current ratio a. The current ratio is used to measure the current assets of an enterprise before short-term debts mature.，The ability to turn into cash to repay debts。

b. When current ratio>2，Indicates that current assets are twice current liabilities，Even if half of the current assets cannot be converted into cash in the short term，It also ensures that all current liabilities are repaid；When current ratio<1时，偿债能力差；介于之间，偿债能力一般。▍数据分析a.通过分析长城3年的数据，我们可以看到长城的流动比率稳定在1~1.5之间，证明长城的偿债能力一般。 b.深入分析长城的流动资产发现，长城最大的两项流动资产为风险极低的货币资金和风险较低的应收票据，让人比较放心。c.通过比较，我们可以看到长城在同行业中处于中间水平。

1. Quick Ratio (QuickRatio) ▍About the quick ratio a. The quick ratio is the same as the current ratio，It reflects the liquidity of the unit's assets and its ability and level to quickly repay maturing liabilities.。b. Quick assets are those assets that can be converted into cash in a relatively short period of time。

c. The quick ratio is calculated by deducting from current assets ① inventories with poor liquidity and ② unliquidable deferred payments.

cost

，as the basis for payment of current liabilities，It makes up for the lack of current ratio。d. When quick ratio>1，Good liquidity；When quick ratio<

1. 5hour，Poor liquidity of funds；between，Fund liquidity is average。▍Data analysis a. By analyzing 3 years of data from Great Wall，We can see that Great Wall has better liquidity。
2. Inventory A. Inventory increase/decrease rate ▍About inventory increase/decrease rate a. Both for manufacturers and retailers，Increased inventory is usually a bad sign。When inventories grow faster than sales，This is a very dangerous signal。b. If the company cannot get rid of all the backlog of inventory，Then the inventory backlog will become a big problem next year，It will be more serious in the next year。

The new products will compete with the backlog of old products in the market.，Leading to more inventory overstock。In the end, the backlog of inventory forced the company to reduce prices.，A price cut means the company's profits will fall。c. If a company's inventory begins to gradually decrease，Then this should be the first signal that the company's operating conditions are improving.。

▍Data analysis a. By analyzing 3 years of data from Great Wall，We can see that inventory is trending down，At the same time, the ratio of inventories to total assets also showed a downward trend.。b. By comparing，We can see that inventories are generally decreasing in the automobile industry (except BYD, which encountered many unfavorable things in 2012)，Automobiles are a periodic industry，The continuous reduction of inventory can prove that this industry is still developing.，Not entering a recession period。

B. Inventory Turnover ▍About inventory turnover a. Since inventory takes up capital (cash is converted into inventory and cannot do anything in the warehouse)，So a company's inventory turnover rate has a huge impact on profitability。b. The consequences of the automobile company’s inventory pressure problem will not be so serious.，For a high-tech company (inventories depreciate quickly) or a dairy company (inventory expires quickly)，Slowing sucks。

c. The quality of inventory conversion rate reflects the level of inventory management of the enterprise.，It also affects the company's short-term solvency。▍Data analysis a. By analyzing 3 years of data from Great Wall，We can see that its inventory conversion rate is accelerating.。b. By comparing，we can see，The Great Wall can only be regarded as average among its peers.。

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