Sharpfokus05, why profits are going to be more than expected
1 What is making money
A much misunderstood idea
It's only in the last few years I've understood making money. Now I see there's 3 stages. 1 investment, 2. generating cash, 3 return on investment.
Revenue minus costs = cash left over
Moving to the 2nd stage is crucial because cash is profit & drives share prices. When sales is more than costs, there's cash left over or profits.
Cash flow statement
Seems simple? But accounts love to confuse. Not all costs are included in profit. You have to look at the cash flow & include investment costs.
2 Why many companies haven't been making money
Revenue slow
Many Indonesian companies haven't made money the last few years, because the economy & sales have been slow growing & even declining in $ terms.
Investment
Meanwhile companies have been investing in new assets which is cost & no sales. Excluding financing, there's no cash left over. No profit.
Cash flow becomes net profit
While many may look profitable, eventually the no cash left over becomes losses as costs from operating & financing the investments rise.
3 Why they will make money now
The assets are there
As shares follow profits, this has disappointed many investors. But that's all about to change, & the great thing is there's lots of new assets!
Investment slowdown
There's 2 reasons why. 1st the investment phase has been slowing down. Losing money has that effect, making it more difficult for the companies.
Sales picking up.
2nd, economy & sales are jumping. Having not grown in $s for 4 years, nominal GDP in $s is up 10% in a year. Rising sales, stable costs = cash left over.
4 Why more than expected
More assets
That means profits. Why more profits than expected? 1st because there's more assets than ever before & higher selling prices too.
Cash to pay bonus
2nd because cash left over can be used to raise salaries, bonuses & dividends. There'll be more money around which can drive even more sales & profits.
Cash to pay financing
3rd because cash left over can be used to pay financing which reduces financing costs, driving profits higher in an exponentimal, virtuous cycle.
Shares will be very pleasantly surprised.
Here's 3 examples of three different stages playing out in the market, taken from company financial statements.
A much misunderstood idea
It's only in the last few years I've understood making money. Now I see there's 3 stages. 1 investment, 2. generating cash, 3 return on investment.
Revenue minus costs = cash left over
Moving to the 2nd stage is crucial because cash is profit & drives share prices. When sales is more than costs, there's cash left over or profits.
Cash flow statement
Seems simple? But accounts love to confuse. Not all costs are included in profit. You have to look at the cash flow & include investment costs.
2 Why many companies haven't been making money
Revenue slow
Many Indonesian companies haven't made money the last few years, because the economy & sales have been slow growing & even declining in $ terms.
Investment
Meanwhile companies have been investing in new assets which is cost & no sales. Excluding financing, there's no cash left over. No profit.
Cash flow becomes net profit
While many may look profitable, eventually the no cash left over becomes losses as costs from operating & financing the investments rise.
3 Why they will make money now
The assets are there
As shares follow profits, this has disappointed many investors. But that's all about to change, & the great thing is there's lots of new assets!
Investment slowdown
There's 2 reasons why. 1st the investment phase has been slowing down. Losing money has that effect, making it more difficult for the companies.
Sales picking up.
2nd, economy & sales are jumping. Having not grown in $s for 4 years, nominal GDP in $s is up 10% in a year. Rising sales, stable costs = cash left over.
4 Why more than expected
More assets
That means profits. Why more profits than expected? 1st because there's more assets than ever before & higher selling prices too.
Cash to pay bonus
2nd because cash left over can be used to raise salaries, bonuses & dividends. There'll be more money around which can drive even more sales & profits.
Cash to pay financing
3rd because cash left over can be used to pay financing which reduces financing costs, driving profits higher in an exponentimal, virtuous cycle.
Shares will be very pleasantly surprised.
Here's 3 examples of three different stages playing out in the market, taken from company financial statements.
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Company A, Cash left over getting strong, share price +30% from a year ago
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Company B, Cash left over turning positive, share price +15
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Company C, cash left over about to turn up, shares -15%.
Any questions or comments, please let me know, Sebastian |
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