The quality of corporate profits refers to the formation process of corporate profits and the compliance, efficiency and fairness of profit results. High-quality corporate profits should be reflected in the good operation of assets, the business carried out by the enterprise has good market prospects and strong competitiveness, and the future development of the enterprise has good financial security. On the contrary, if the quality of corporate profits is not high, it will not only affect the future development of the enterprise, but also have a negative impact on the operating results of the enterprise. So how to evaluate the quality of corporate profits?
Cash security analysis is an evaluation of profit quality based on the cash flow information provided in the cash flow statement. The cash flow statement is prepared on the basis of the cash basis, which has a strong "rigidity" of cash payment compared with the balance sheet and income statement prepared on the basis of accrual accounting, thus becoming a major "barrier" to ensure the quality of profits. From the perspective of the cash flow statement, cash inflows include cash inflows from operating activities, investment activities and financing activities. Since investment activities and fund-raising activities are not normal business activities, cash inflows from operating activities should be the focus of attention. Generally speaking, good operating cash flow can ensure the quality of corporate profits. If the cash inflow from operating activities accounts for a large proportion, the profit quality of the enterprise is better;On the contrary, the profit quality of the enterprise is weak.
The profit analysis is mainly to analyze the proportion of the company's main business profits, other business profits, non-operating income and investment income in the total profit of the enterprise. Through this analysis, we can roughly understand whether the profit structure of the enterprise is reasonable, whether the profit model of the enterprise depends on the main business or other businesses, or asset transfer, etc. So as to make a judgment on the sustainable development ability of the enterprise. For example, if an enterprise relies on a large proportion of its main business to obtain high profits, it shows that the company's products have good market prospects, its products have been recognized by consumers in the market, and its future development has a strong guarantee. If the profits of an enterprise are mainly based on other business profits or non-operating income and investment income, it will leave people with a bad impression of relying on speculation and other non-business to make profits, and its future development is weak.
Asset security analysis is an evaluation of the asset security of an enterprise through the asset information provided by the balance sheet. Since assets are an important source of future earnings, their security is directly related to the future profitability of enterprises. Generally speaking, companies with higher asset security will also have stronger future profitability. Asset security is mainly reflected in the profitability of assets (i.e., the profitability of assets) and the liquidity of assets (i.e., the ability of assets to be converted into cash). If the company's return on assets is high and it has good liquidity (i.e., the asset turnover rate is fast), the company's profit quality is better;On the contrary, the profit quality of the enterprise is weak.
Profit growth analysis is an analysis of the profit growth of an enterprise over the years. Generally speaking, a company that continues to grow has better prospects for future development. The analysis of profit growth should be carried out in combination with the development prospects of the industry, changes in national policies and changes in the macroeconomic environment. For example, if an industry enters a mature or declining period from the development period, the profits of the enterprises in the industry will also enter a period of growth or decline. In this case, if the enterprise can adjust its strategic direction in time according to the changes in the market or take effective measures to deal with the unfavorable situation, it may make the development of the enterprise turn around.
Accounting policy analysis is mainly to evaluate the principles, methods and procedures adopted by enterprises in accounting. Since different accounting policies will produce different accounting results and economic effects, accounting policies are directly related to the authenticity and reliability of corporate profits. If the accounting policies adopted by the enterprise conform to the provisions of national policies, regulations and accounting systems and maintain a relatively stable situation, the profit quality of the enterprise is betterOn the contrary, if the accounting policies adopted by the enterprise do not comply with the provisions of national policies, regulations and accounting systems and change frequently, the profit quality of the enterprise is weak. In addition, the analysis of accounting policies should also focus on whether the enterprise uses accounting policies for earnings management.
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