Net profit not only reflects the profitability of listed companies, but also is the "life and death line" of some listed companies or IPO companies that have suffered losses continuously. Focusing on the theme of "doing a good job in net profit", some listed companies will beautify their financial statements by relaxing credit policies, reducing bad debt provision for accounts receivable, changing accounting estimates and adjusting corporate profits. Faced with these financial information, investors are often difficult to grasp.

How to find the "devil's details" in the complicated financial information? Let's start with the income statement, sort out the cross-checking relationship between financial statements, and see how to find the "doubtful points" in financial statements.

1. Income statement and balance sheet

Profit comes from income, and income MINUS cost makes profit. This is the basis of the income statement.

The assets on the balance sheet can bring income to enterprises, and at the same time, in the process of using such assets, their consumption will gradually turn assets into costs in the income statement. Take fixed assets as an example. When using fixed assets for production activities, on the one hand, products are produced, and then income is generated through sales; On the other hand, the book value of fixed assets gradually decreases on the balance sheet through depreciation, and the corresponding amount appears in the cost or expense of the income statement in the form of depreciation expense.

This check relationship can help investors analyze whether the changes in financial statements are reasonable, and then identify the moisture in corporate profits. For example, if an enterprise continues to increase investment in fixed assets, and at the same time, the original value of fixed assets and net profit increase are shown in the balance sheet and income statement, investors may need to pay attention to whether the depreciation expense of the enterprise is reasonable, whether it is possible for the enterprise to reduce the depreciation expense recognized in the current period by adjusting the depreciation policy of fixed assets, and whether the profit scale expanded by the enterprise through investment in fixed assets is reasonable.

Income statement and cash flow statement

Income statement and cash flow statement are both periodic reports. Through these two statements, investors can observe and evaluate the profitability of enterprises from two different dimensions: profit and cash flow.

For example, suppose that two enterprises, A and B, started to operate in the same year, and their income statements are basically the same: income 1 100 million yuan, expenses of 80 million yuan and net profit of 20 million yuan. However, from the cash flow statement, enterprise A sells on credit, that is to say, it earns profits first and then collects money, and its business activities generate less cash flow; And enterprise B requires payment, so the cash flow generated by operating activities in its cash flow statement is obviously better than that of enterprise A. For these two enterprises that seem to be consistent from the income statement, due to the different performance of the cash flow statement, which one is more preferred by corporate investors, I believe there is no need to go into details.

You can also broaden your horizons and continue to analyze the income statement and cash flow statement through a continuous period, such as two to three years. If the business model of an enterprise has not changed greatly, its income scale and operating cash inflow scale should match. If the income of an enterprise shows a "steady" growth, and the operating cash inflow does not increase with the income growth, then investors should analyze the operation of the enterprise to judge whether the enterprise "beautifies" the financial statements through some financial means, such as subjectively withdrawing impairment reserves and changing accounting estimates.