Looking on Shares Sustainability vs Companies Sustainability (Part 2)


Regarding companies sustainability financially, I am talking about
a) company able to pay staff salaries
b) company able to pay all the expenses
c) company able to make all the monthly installment for hire purchase
d) company able to sustain without considering selling or dispose the Fixed Assets 

Therefore the followings sustainability features deems important to me

a) Current Assets should be more than Non-Current Assets (Fixed Assets)
I prefer Current Assets (Cash/Bank, Stock, Trade Receivables) compare to Non-Current Assets as years of the profits is inside this category. Non-Current assets could be old and depreciated in the long run, as it always need to be replaced by a new Non-Current assets in near future by spending money on it.

I am not comfortable for a company to top up their Fixed Assets value, as buying a fixed assets should come with the rise for the revenue or else why spend money on it without increase their revenue in coming years, but some might say, to spend the money just to maintain the revenue not to increase the revenue. Sustainability would be shaken easily with the non-operating fixed assets.

b) Current Assets should be more than Current Liabilities (Current Ratio)
For easy understanding, Current assets (you owe me) and Current liabilities (I owe you).
I would rather choose you owe me at least 2 times than I owe you 1 time. If you are looking at PN17 companies (PN17 stands for Practice Note 17/2005 and is issued by Bursa Malaysia; relating to companies that are in financial distress), current ratio is easy to be noticed which is financial distress or problem which is I owe you more more more than you owe me little.


c) Net profit before tax
This is the easiest part that everyone should know. Net profit should be at least be achieved annually or else what is that company setup for? or why pay accountant or CEO or COO or CFO inside that company for? As for the companies, kindly take care of your budget and to shrink expenses. I have been an accountant for corporate before that why I familiar, I know where to start, so does the CEO, COO or CFO. Believe me, teamwork and respect is important in this situation rather than disrespect. As in my case, I have learn everything but without the respect from CEO and I left. Anyway CEO also left 2 years later due to his incompetency.

In corporate, they are a lot of things inside happening if the company generate net loss. Kindly take care of your shares selection from now on move to profitable counter.

d) Cash Flow is positive
This formula is Current Assets - Current Liabilities - Long Term Liabilities (especially Loan & borrowings) should be positive. If it is negative, the company is in the selling Non-Current Assets position stage to sustain their business.

e) Cash / Bank over Current Assets
Current Assets consists of Trade Receivables, Bank / Cash, and Inventories. I would prefer at least 25% Cash / Bank over the total current Assets to become comfortable. Some company only have 3% from the current assets, whereby the company needs to collect from trade receivables or from bank in the daily operating basis.

f) Trade Payable over Current Liabilities
I would prefer Trade Payable more than other item in the current liabilities because Trade Payable is a trade in nature, where as loan, borrowings or other payable are not. In other words, loan or borrowings portion increase in order to reduce trade payable portion directly and indirectly in the same category of current liabilities.

g) Biggest turnover over Current Assets / over Current liabilities
This formula is taken by inventories, trade receivable and trade payable.
The company might kept
a) 6 months stock, 1 months trade receivable, 3 months trade payable
b) 1 months stock, 3 months trade receivable, 6 months trade payable
c) 3 months stock, 6 months trade receivable, 1 months trade payable

The three conditions above are not my selection, i would rather choose between numbers between 2-4.


Summary of Part 2

1. Investor need to know their product quality / company features before investing.
2. Investor need to self study also.


For study case, kindly check the following for your own research.

PN17 - 01.08.2017 - Perisai Petroleum Teknologi Bhd (0047)
PN17 - 01.08.2017 - The Heavy Engineering Bhd (7206)

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