Profitability - Why It Matters
When you purchase a stock, you become a shareholder of the company, ie. you own part of the company, have voting rights and entitlement to profits (usually given out in the form of dividends). As a shareholder, it is important to know whether "your" company, which you have put money in, is making profits. Companies making a profit consistently are going to hold more promise for the long run, both for the company itself and for its investors.
How To Check A Company's Profitability?
The most basic way is to look for this term "Net Income Attributable To Shareholders" on the company financials. Often referred to as the company's total earnings or profit or "bottom line". Net income is listed at the bottom of the income statement. It is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. It is liken to taking a restaurant's total sales from selling their dishes, then subtracting all its overheads such as rental, employment costs, utilities, cost of food ingredients, taxes etc and seeing what's left for the owner of the company.
You can check on a company's profitability via "The Edge Markets" tab on Lim & Tan's online platform. Right-click on the stockname and select "The Edge Markets". Scroll down to "Financials" and search for the last line "Net profits - owners of company". A positive number will tell you the company has been profitable. A negative number will tell you the company has been in the red. Check for consistency of profits over the years.
Net income is usually one of the first few items that I check whenever a client calls to ask for opinion on a stock. I hope this entry has been beneficial to you.
