Gross proft and debt - finding them on a financial statement

adam_dynamic · Apr 1, 2010

Hey,

Ok, this might sound 'billy basic' but I'm just starting out and figured there's no such thing as a stupid question?

I picked up the 'Naked Trader' book and I've started looking for companies to paper-trade with. One of the key measure he makes as to whether a share is good value or not is whether 3x gross profit is greater than the current debt.

Now, could someone tell me which of the figures here for example would I need?

Under the 'Balance Sheet' tab near the bottom, total liabilities are stated as $28,692m and under 'Fundamentals' pre-tax profits are $1,530m - am I looking at the right figures? Should I just be looking at the Gearing Ratios?

Any help on this would be much appreciated!

Adam

[this thread may appear twice as my browser had an 'incident' when I posted it - if it does can someone delete one of them please?]

timsk · Apr 1, 2010

Hi adam_dynamic,
Welcome to T2W!
T2W is primarily a site for traders who, for the most part, use technical analysis (i.e. charts) to make short term trading decisions. However, that's not to say that using fundamental analysis (i.e. the question you pose) isn't wise or helpful. On the contrary - it's perfectly legitimate. I mention it only because a relatively small percentage of T2W members will be used to looking at pages of fundamental info' (such as the one linked in your post) and be comfortable commenting on it. Having said that, your assessment looks correct as far as I can tell!

Robbie Burns has - as you're no doubt aware - his own forum on ADVFN. I recommend you join it and pose your question there and get an answer from the horses mouth. The other point to mention is that there will be software that can filter prospective companies for you along the lines you require. ADVFN may be one of them - I don't know. I used to subscribe to ShareScope - which is excellent - and, certainly, you would be able to create such a filter with them I'm sure. That said, perhaps you want to familiarize yourself with looking at a lot of fundamental data and being able to sort the wheat from the chaff.

As a rule of thumb, if you're able to filter stocks on a fundamental basis and then want help as to when a good time to buy/sell would be based on technical analysis, that's when a site like this one will come into its own and you'll get many more responses. Sorry not to be more helpful! In the meantime, please take a look at the 'Essentials of First Steps Sticky' in this forum to get a better idea of what this site is all about and how it can serve you best.
Tim.

adam_dynamic · Apr 2, 2010

timsk said:
Hi adam_dynamic,
Welcome to T2W!
T2W is primarily a site for traders who, for the most part, use technical analysis (i.e. charts) to make short term trading decisions. However, that's not to say that using fundamental analysis (i.e. the question you pose) isn't wise or helpful. On the contrary - it's perfectly legitimate. I mention it only because a relatively small percentage of T2W members will be used to looking at pages of fundamental info' (such as the one linked in your post) and be comfortable commenting on it. Having said that, your assessment looks correct as far as I can tell!

Robbie Burns has - as you're no doubt aware - his own forum on ADVFN. I recommend you join it and pose your question there and get an answer from the horses mouth. The other point to mention is that there will be software that can filter prospective companies for you along the lines you require. ADVFN may be one of them - I don't know. I used to subscribe to ShareScope - which is excellent - and, certainly, you would be able to create such a filter with them I'm sure. That said, perhaps you want to familiarize yourself with looking at a lot of fundamental data and being able to sort the wheat from the chaff.

As a rule of thumb, if you're able to filter stocks on a fundamental basis and then want help as to when a good time to buy/sell would be based on technical analysis, that's when a site like this one will come into its own and you'll get many more responses. Sorry not to be more helpful! In the meantime, please take a look at the 'Essentials of First Steps Sticky' in this forum to get a better idea of what this site is all about and how it can serve you best.
Tim.

That's great, thanks a lot for your help!

adam_dynamic · Apr 2, 2010

Hmm, it seems that Robbie Burns' forum is accessible only as part of the 'premium package', I think I might just have to dig out the last financial report the 'old fashioned way'...

Martinghoul · Apr 2, 2010

Net Debt and Pre-tax profit should do just fine for you, I would think...

DionysusToast · Apr 2, 2010

Agree with Martinghoul.

This isn't a 1.44477292 vs 1.44477293 thing.

This is common sense. If someone is pulling in 3 million a year but has debts of 50 billion - they are screwed. On the other hand, if someone is pulling in 50 billion a year with 3 million of debt - you are OK. Then again - what's the industry norm ?

If you earn $500 a month and have a $200,000,000 mortgate you are screwed. Companies are just the same. It's common sense IF you understand what the numbers on a profit & loss statement, balance sheet and cash flow statement are.

Robbie Burns book is a pretty good one in my opinion - with the exception of the part about using L2 to enter trades you will be in for months - that's hogwash.

What you need to do is to get an understanding of financial statements in my opinion - there's plenty of books that lay this out for you and it is not rocket science.

I'd advocate understanding the financial statements and using peer-comparisons over using a pure ratio.

adam_dynamic · Apr 2, 2010

DionysusToast said:
I'd advocate understanding the financial statements and using peer-comparisons over using a pure ratio.

That sounds like fine advice to me! As I mentioned above I'm only paper-trading at the moment, this is one of those things that the more you learn the more you realise you don't know...

Gross proft and debt - finding them on a financial statement

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