Look At Sales Figure

Look At Sales Figure

Look at sales figure

Observe the sales figure (if available) and see whether it is in-creasing from year to year. Calculate the rate of turnover. The maintenance of a steady or increasing rate of stock turnover from year to year should point to efficiency and the prospect of increasing profits, hence to a sound investment.

Work-in-progress: The cost of uncompleted work in pro-cess of production. A significant fall in 'work-in-progress' may mean falling orders. Observe from the annual report the state of the order website . A full order website will lead to stable or increasing 'work-in-progress'. This reasoning may not be true of the building and other large contracting industries as their work-in-progress can have considerable fluctuations from year to year.

Debtors: This item represents the amounts outstanding to the company, principally from its customers (trade debtors).

Some debtors items (e.g., directors' loans from the company) have to be separately stated as such on the balance sheet.

A substantial proportionate increase in 'debtors' figure (com-pared with previous year or years) could signify either:

(i)The company is finding difficulty in collecting amounts due for goods supplied, or

(ii)The company is giving easier credit terms to attract business.

Neither case is a healthy sign for investors.

The 'debtors' figure should not show a large proportionate increase unless occasioned by increasing volume of business, as shown by the annual turnover.

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