Financial statements are written documents about the financial status and operating results of an enterprise. As a stockholder, studying financial statements well can not only understand the company's dynamics and tap potential stocks, but also avoid many potential risks, that is to say, it can avoid stepping on thunder. For example, stocks such as Kangmei Pharmaceutical and Shenwu Environmental Protection can see hidden risks in financial statements long before the thunderstorm.

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there are three main indicators and several incidental indicators. Main indicators

1. Return on net assets

This is the first indicator of Buffett's stock selection, which reflects the company's profitability.

return on net assets = net profit/net assets X1%

what is repeated is the profits of the assets invested by shareholders in a certain period.

if you put this ratio above 15%, you can exclude 9% companies.

2. Net profit margin

Net profit margin reflects the proportion of net profit in the company's operating income.

net profit rate = net profit/operating income X1%

This indicator is the same as the return on net assets, which can be compared across industries.

3. Gross profit margin

Gross profit margin refers to the proportion of the company's operating costs to its operating income, which is an indicator of the desirability and competitiveness of the company's products.

gross profit margin = gross profit/operating income

gross profit margin = operating income-operating cost

incidental indicators:

sales cash yield: reflecting the quality of profit

asset-liability ratio: reflecting the debt level of the company

free cash flow: reflecting the quality of profit

inventory turnover, accounts receivable turnover and accounts payable turnover: reflecting the use of funds of the company.

The financial report contains a wide range of contents. If I can only choose a few subjects to read, I will choose the above ones. However, to understand a company more comprehensively, we should not only look at the performance of a certain financial indicator, but also use multiple financial indicators to verify each other. If there are logical inconsistencies, it means that there may be some hidden tricks in this financial report.

In short, the analysis of corporate financial statements is a highly professional job, which requires not only solid knowledge of fiscal and taxation theory, but also rich practical experience in fiscal and taxation work and long-term experience in financial statement analysis. These indicators can basically exclude some less excellent companies, and the selected stocks are generally white horse stocks, blue chip stocks, growth stocks and so on.