Profit Quality Checker

Profit growth on paper does not always mean profit growth in reality. Answer 8 quick questions to see whether the profit is genuine or built on weak foundations.

Stock / Company Name (for your reference)
1. Net profit growth over the last 3 years (%)
Search on Google: "[company name] 3 year profit growth CAGR" — look for the compounded net profit growth figure.
2. Operating cash flow growth over the last 3 years (%)
Search on Google: "[company name] cash flow from operating activities last 3 years" — compare the growth in this number to the profit growth above.
3. Change in receivable (debtor) days over the last 3 years (%)
Search on Google: "[company name] debtor days last 3 years" — note the debtor days figure from 3 years ago and the latest figure, then calculate the percentage change. Enter a negative number if debtor days have fallen.
4. Other income as % of net profit, latest year
Search on Google: "[company name] other income annual report latest year" — divide the other income figure by net profit for that year.
5. Change in debt to equity ratio over the last 3 years (%)
Search on Google: "[company name] debt to equity ratio last 3 years" — compare the ratio 3 years ago to the latest ratio and calculate the percentage change. Enter a negative number if debt to equity has fallen.
6. Interest coverage ratio, latest year
Search on Google: "[company name] interest coverage ratio" — if not directly shown, this is EBIT divided by interest expense.
7. Change in promoter shareholding over the last 3 years (percentage points)
Search on Google: "[company name] promoter holding shareholding pattern trend" — subtract the promoter holding percentage from 3 years ago from the latest percentage. Enter a negative number if it has fallen.
8. Promoter pledged shares, latest (%)
Search on Google: "[company name] promoter pledged shares percentage"

This tool is for educational purposes only and does not constitute investment advice. Always do your own research or consult a qualified advisor before making investment decisions.