Finding the Source of Revenue

Aside from using the Jitta Score and Jitta Line to assist in investing, one thing investors should do is read the company’s annual report they plan to invest in.

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Aside from using the Jitta Score and Jitta Line to assist in investing, one thing investors should do is read the company’s annual report they plan to invest in.

Some may immediately groan at the prospect of reading this long document, but when you think about it, continuously using Jitta to choose companies with good Jitta Scores (more than 5 in every year) is going to make reading annual reports a piece of cake.

Like what I always say, the important thing about a company and its future stock price is the company’s profit. Generally, people only look at earnings per share and most only focus on 1 or 2 years). This is a rookie mistake because, in order to assess whether the company will be able to grow their net profit in the future, one must look at many other financial figures and should date back at least 5 years ago.

Jitta has already done the work for you, evaluating whether a company has the capability to run its business from past to present. If a stock has a Jitta Score of more than 5 continuously, it means that the company is quite competitive to a certain level.

Therefore, what you have to look further for, in the annual report, is the figure that indicates company’s ability to increase net profit in the future. So basically, searching for net profit figure, assessing its strength, and estimating the size of possible profit loss, which can be found by answering these following questions:

  1. What is the product or service that the company sells? Are they necessary in daily living?
  2. Does the company sell perishable goods or services? And how often do these goods/services need to be purchased?
  3. Does the company’s transactions deal in cash?
  4. Is the company’s product/service sold to the mass market?
  5. Can the company increase its prices according to the rate of inflation?

If the answer is “YES” to all 5 questions, we can be 80% positive that the company will be able to remain competitive and increase its profits in the many years to come.

However, if after reading the annual report, and you still cannot answer the 5 questions, what you should do is close that report, and move on to the next one. Always remember that we have plenty of choices to invest in. There is no need to put our money into something so difficult. Just think – all the world-class companies tend to be businesses that are actually very easy to understand.

Lastly, don’t forget that you can also document all the stocks’ facts and figures you found in Jitta Note. As you keep collecting information, you will be more equipped to make informed decisions when investing in different stocks in the future.

Author: Jitta

Jitta simplifies financial analysis for value investors and financial advisors alike. Our stock-analysis platform offers actionable advice to help them make better investment decisions and generate higher returns based on a simple principle: “Buy a wonderful company at a fair price.” And we do that by creating Jitta Ranking, our proprietary algorithm that ranks stocks based on their profit potential. Returns generated by Jitta Ranking since 2009 has outpaced that produced by the S&P500 index by a large margin. Jitta’s technology processes information like a human mind, assessing complicated data and digesting it into an easy-to-use and intuitive format. Its key features include Jitta Score, an indicator of a wonderful company; Jitta Line, an indicator of a company's fair price; financial statements-made-simple Jitta FactSheet; Jitta Playlist, an intelligent screener and backtest system in one; and Jitta Portfolio, a smarter investment-tracking mechanism.

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