Improve your investing decisions with this one ratio
Don’t be fooled by an attractive PER. Here’s a simple, easy and more reliable metric for your toolkit. The financial media love to focus on net profit and its derivative – the price-earnings ratio (PER). Both, however, can lead you astray. For one thing, accountants decide how to report profits, and some managements have a penchant for creativity. There’s more room to ‘fiddle’ with the income statement than with either the balance sheet or cash flow statement. Another issue is that what a company spends buying assets, such as new machinery, doesn’t flow through the income statement in one hit, it’s smoothed out over years or decades as a non-cash ‘depreciation’ expense. For businesses that require a lot of reinvestment to maintain and grow their operations, net profit often overstates the economic reality. Read full article: (VIEW LINK)
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