I believe everyone has heard this saying:
A good company + a good price equals making money while lying down.
There may be many good companies, but opportunities for a good price are actually not many.
And just at the tail of this bear market, at this time of "slaughter" for small and medium-sized market value stocks, you can buy a good company at a good price.
However, currently, many investors no longer believe in good companies.
They treat all companies with a skeptical attitude, thinking that they all have the possibility of financial fraud.
Avoiding the issue of financial fraud is not too difficult, moderate diversification is enough.
It can't be that coincidental that a few companies with financial fraud have all been encountered by you.
Moreover, you can avoid the possibility of financial fraud from some financial indicators.
Such a good opportunity to pick up money lying on the floor must be seized.If one must maintain a skeptical attitude towards all A-share financial reports, then it is suggested to stay away from the stock market and not engage in stock trading.
If you really consider this market as a fraudulent market, what is the point of trading stocks?
Having a risk control awareness is certainly a good thing, but excessive risk control and being overly cautious can also make it difficult to seize real good opportunities.
Let's first talk about which types of companies are not prone to financial fraud.
Most financial frauds are nothing more than a few types.
The first type is fictitious transactions and fake accounting.
This kind of inflation is reflected in the financials as accounts receivable, accounts payable, etc.
Money cannot really enter the company, and it is already very good to be able to pass through an account.
Related party transactions will more or less exist.
Some bosses, in order to save taxes and cash out, often transfer money to their related companies for easy access.But if it involves substantial financial revenue, then problems are likely to arise.
Usually, companies with large cash flows but low actual net profits often have this issue.
Once a problem occurs, that small net profit cannot cover the risks brought by the huge cash flow.
The second type is cash flow management, where deposits disappear without a trace.
Many financial explosions are due to accounts disappearing without a trace.
Behind this, there are many stories to tell.
Some are inflated cash flows, and some are cash flows that have been cashed out.
The former and the latter are half and half, and they actually exist.
Anyway, the company has exploded, and the money has been washed away.
Usually, there are fewer problems with what is shown as cash, and there are more problems with what is shown as financial management.The application of financial products to money laundering, or simply the direct detonation of a financial bomb, are both entirely possible.
The third type is the non-provision for bad debts, which leads to an overstatement of net assets.
There are some accounts that are clearly bad debts, accounts that cannot be recovered.
Any enterprise carries this risk, so bad debts are definitely present.
When a listed company's books show a large amount of accounts receivable, one must consider a certain proportion of bad debts.
Another possibility is the backlog of inventory, which may also exist as bad debts.
If inventory cannot be sold, it will "expire", at least it will need to be discounted to clear the stock in the future, and at least it should be cleaned up every few years.
Many times, the net assets are overstated and need to be moderately discounted to ensure the authenticity of the assets.
The fourth type is the appreciation of intangible assets, which raises the net assets.
There are many companies that have had a "goodwill bomb", with billions, or even tens of billions of goodwill, which are problematic.It's not that goodwill is worthless, but when the walls come tumbling down and everyone is pushing, the value of goodwill is indeed very low.
So, when it comes to intangible assets, try not to consider them too much when reading financial reports.
If they account for a high proportion of net assets, it's necessary to pay moderate attention to the risks.
For those who are more rigorous, some intangible assets, goodwill, and even the depreciation of fixed assets can be removed.
In any case, the actual net assets are definitely lower than the book net assets, which is an undeniable fact.
Financial fraud definitely leaves some clues, even if it's flawless, it can be avoided in reverse.
For example, do not buy companies with high debt.
For example, do not buy companies with high inventory.
For example, do not buy companies with high goodwill.
There are more than 5,000 companies, there are always good ones, so why focus on these companies that may have problems?Which type of company is considered a high-quality company lying on the ground?
Many people would say that a company that can make money is a high-quality company.
However, being profitable now does not guarantee profitability in the future.
A high-quality company that is "lying on the ground" should at least have a high margin of safety and relatively low risk.
Such companies have several characteristics.
First, high cash flow.
Nowadays, it is not easy to find a listed company with a relatively small market value and a balance sheet of 1 billion.
The total current assets of many companies are not even enough to cover their liabilities.
But some listed companies still have a high cash reserve.You can consider that the risk control of this enterprise is done well, after all, during a period when the overall environment is not very good, having a large amount of cash reserves is more beneficial to the company's development, and even business transformation.
And those companies with tight cash flow, if there is no improvement in 2-3 years, it is very easy to have problems.
Second, low debt ratio.
I have always believed in a sentence.
Assets are "false", but liabilities are real.
Assets are often discounted, and many net assets are suspected of being inflated, which has been discussed above.
But loans, liabilities, these are all real, and there will be no shortage.
Why is it very dangerous for real estate companies with a debt ratio of more than 80%? Because once the house falls, it immediately becomes insolvent.
The principle is the same, companies with a debt ratio exceeding 50% are carrying a burden and there is a risk.
Those companies with a debt ratio of 70-80% have a considerable part that already has serious problems.There are some light-asset companies with liabilities of only 100-200 million, or even less, and a debt ratio of less than 10%, which are almost impossible to go bankrupt.
Third, low price-to-earnings ratio.
Whether you earn a lot or a little is one thing, and the level of the price-to-earnings ratio is another.
At this time, the price-to-earnings ratio is a safety factor.
Low valuation, low market value, and high net profit are the safety margins.
Of course, you can't just look at the price-to-earnings ratio for one quarter, or half a year, or one year.
You need to look at it dynamically, long-term, and in combination.
Fourth, high dividend ratio.
Dividends are another way to verify the authenticity of financial statements.
A high dividend ratio means that the company has money on its books and is willing to share it with shareholders.Companies with low dividends but high net profits actually have issues.
Net profits can be inflated through accounts receivable and financial means, including inventory increases, which can all boost net profits.
However, high dividends are a tangible distribution of money, reflecting the strength of a company.
Fifth, stable performance.
Stable performance refers to the business performance over the past three years, which does not fluctuate greatly or shows a positive growth trend.
Whether the performance grows or not is one thing, but stability is more important.
Performance with drastic ups and downs is difficult to value.
In fact, in a bull market, as long as the performance is stable, the valuation can naturally be driven up, and there is no need for a significant increase in net profits.
Many people pay more attention to the choice of industry, but in fact, there are quality companies in all industries, it's just that the criteria for judgment are somewhat different.
There is no need to limit oneself rigidly, it's completely unnecessary.Because when you confine yourself, you often become one-sided and subjective, which can lead to missing opportunities and being easily deceived.
A bear market is a time when you have plenty of time to study high-quality companies.
Comments