ArticleBiz.com :: Free article content
Authors: Maximum article exposure. Publishers: Reprintable article content.
BROWSE ARTICLES
ArticleBiz.com Home
Featured Articles
Recently Added Articles
Most Viewed Articles
Article Comments
Advanced Article Search
AUTHORS
Submit Article
Check Article Status
Author TOS
PUBLISHERS
RSS Article Feeds
Terms of Service

As an Investor, How Important are Profits?
Home Finance Trading / Investing
By: Rabind Elias Email Article
Word Count: 702 Digg it | Del.icio.us it | Google it | StumbleUpon it

  

Traditionally, investors looked forward to their dividend checks as a reward for having invested in their preferred companies.

Today, the dividend returns are quite dismal. And capital growth substitutes for that. However the question beckons "How important are Profits"?

a. Can we measure a company’s success by the way it reports its profits and by their magnitude?

b. Can we rely on the company providing us continuous profits each year?

c. Can we say that because a company has reported profits for over 10 years we can assume it’s a safe company to invest in?

For each of the questions asked, the answer is NO.

Warren Buffet of Berkshire Hathaway stated in this year's letter to shareholders, "never trust the financial statements of companies, and don't just focus on profit figures....research and focus on broader financial figures", as reported by The Daily Telegraph March 7, 2011, Vol.1, No 2274.

You must first ask, what is profit? Profit is only derived after taking into account "allowable expenses" as determined by the country’s taxation system in order to purely determine taxable income, ie Profits.

The main aim of the game is to ascertain what portion of the company’s effort is to be given to the Tax Dept for the liberty of doing business in that country/state.

For question a; can we measure a company’s success by the way it reports its profits? Just by analyzing the paragraphs above I think you may have some idea that its not totally correct or a reliable indicator.

It would be difficult to assess a company’s success if we are merely to rely on profits, since now we know how profits come about.

In reality, when you look at profits, all you should see is a manipulation of figures to give a residual figure that the tax man is looking for or an amount the company is willing to set aside towards the payment of taxes.

A situation did occur in the recent banking crisis where the profits stopped and its follow through effects to all industries in all corners of the world. And this should also answer question b.

An Investment Analysis researched many years ago, showed that most banks were in financial distress, despite reporting profits each year.

The success and or viability of the company rests elsewhere, in most parts.

To be really "profitable" or viable, you need to have, adequate systems in place, assets in the right place doing the right things, investments producing proper results...these are a few of the main drivers of the business.

It is the nuts and bolts of the company that need to be addressed and analyzed.

For whatever change that may happen in the financial market, it is only the companies that have the base fundamentals together that will survive from any changes and/or to any external threat that is beyond their control.

Investment Analyst firms devote their time assessing companies in a manner that is more in tune with what inner management of companies do, so that investors can invest wisely.

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next

www.rpmaths.com or email rpmaths@bigpond.com. Rabind Elias, Director of RP Maths Pty Ltd, is an investment analyst with post graduate qualifications in Accounting, from Australia,and with over 20 years of investment research.

Article Source:
http://www.articlebiz.com/article/1051497359-1-as-an-investor-how-important-are-profits/

This article has been viewed 600 times.

Rate Article
Rating: 0 / 5 stars - 0 vote(s).

Article Comments
There are no comments for this article.

Leave A Reply
 Your Name
 Your Email Address [will not be published]
 Your Website [optional]
 What is seven + seven? [tell us you're human]
Notify me of followup comments via email


Related Articles


Copyright © 2019 by ArticleBiz.com. All rights reserved.

Terms of Service | Privacy Policy | Contact Us | Submit Article | Editorial