I'm planning on writing a series of posts about how to quickly measure the financial performances of a company, namely by looking through profit margins on profitability, rate of returns on assets or equity about management effectiveness, and the valuation metrics of P/E ratio and price-to-book ratio, used to check against stock prices. These 3 types of financial information can be easily compiled in the format of a financial summary, which I'm ready to distribute, also as posts, if requested by anyone. Simply tell me the name of any public company you would like to know about and I can write up a summarized financial performance of that company for you. I already had an article titled, How to Read a Company’s Financial Summary, published elsewhere--too long to have it here as a blog post. Anyone interested, just click on the link.
In the first of this series, let’s start with profit margins. Two kinds of margins are most representative to investors, that is, operating margins and net profit margins. A brief explanation about each was given in the article just mentioned above. In addition, margins are the result of cost-control ability and pricing power a business has. Cost control reflects a company’s operational capability and pricing power has much to do with its product or service’s uniqueness and certain marketing performance. A low mark on any one of those areas will eventually show up on the company’s bottom line, delivering no good financial results in the long run. And that’s why investors care about a company’s profit margins and like to see them improving over time.
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