I'm worried about my retirement, so I started investing in stocks DAY 14 [Sales and Profit]
— Walking with Haru, Age 60 Investment Log Day 14 —
I watched one video today.
The theme was "The relationship between sales and profit."
To read financial statements, you first need to know that the word "profit" doesn't just mean one thing.
No matter how high sales are, the money left in hand varies greatly depending on the situation.
Today, I learned the "mechanism of how money remains."
📚 What I learned today
Profit changes its form in 4 stages
As you subtract various expenses from sales, profit changes into four different names.
I organized it in a diagram.
💰 Gross Profit
Sales - Cost of Goods Sold (material costs, etc.).
This is the basic profit of a business after subtracting the cost of hamburger buns and patties.
Example: 5 million yen - 3.5 million yen = Gross Profit 1.5 million yen📊 Operating Profit
Gross Profit - Selling, General and Administrative Expenses (advertising costs, personnel costs, etc.).
Profit earned from the core business itself. The "capability" figure that investors pay the most attention to.
Example: 1.5 million yen - 1 million yen = Operating Profit 500,000 yenOrdinary Profit
Operating Profit + Non-operating income/expenses (interest on deposits, interest on loans, etc.).
Shows the overall recurring capability of the company.
Example: 500,000 yen + 100,000 yen - 200,000 yen = Ordinary Profit 400,000 yen✅ Net Profit (Profit for the period)
Ordinary Profit - Taxes, etc.
The money finally left in the company. The "true earnings" for one year.
Example: 400,000 yen - 100,000 yen = Net Profit 300,000 yen
💡 Satsuki's Memo
By the way, this Ordinary Profit is apparently abbreviated as "Keitsune" among investors.
"Kei" + "Tsune" equals "Keitsune." It sounds like industry jargon, and I feel a little closer to being an investor, which is exciting! 🌸
💡 The perspective of "ratios" that investors pay special attention to
Among the four types of profit, the ones professionals focus on are "Operating Profit" and another one, "Gross Profit Margin."
Gross Profit Margin = Gross Profit ÷ Sales
By using percentages instead of the raw numbers, you can compare companies of different sizes to see "which business has stronger earning power."
I learned that looking at "ratios" rather than monetary amounts is the investor's perspective.
💬 Satsuki's question and Haru's answer
🌸 Me:"There are four types of profit... When the news says 'record high profit,' which profit are they talking about?"
🌱 Haru:"Most people refer to 'net profit' or 'operating profit.' However, the criteria can vary depending on the report. That's why it's important to get into the habit of opening the IR page yourself and checking 'which stage of profit' it is. Just doing that will change how you see the information."
🌸 Me:"Should I prioritize looking at the gross profit margin or the operating profit?"
🌱 Haru:"I recommend first checking the 'strength of the business itself' using the gross profit margin, and then looking at 'how they earn money from their core business' using the operating profit. Some companies have high gross profits but low operating profits because they spend too much on advertising (selling, general and administrative expenses). If you look at both as a set, you can understand the company's financial health."
📝 Today's Summary
Sales are the 'entrance,' and profit is the 'exit.'
If you follow the four types of profit in order,
you can clearly see where a company spends its money and how much it has left at the end.
Numbers don't lie.
However, the view changes completely depending on which number you put the spotlight on.
I watched the video, took notes, and summarized them in an article.
A total of one hour.
One hour every day. That's all it takes.
I believe that consistency is my greatest talent.
Tomorrow, we'll move on to the topic of a somewhat mysterious expense called 'depreciation.'
I'll keep going tomorrow too.
📣 'Friends Walking with Haru' is currently in preparation
I'm creating a place where friends who have also started investing can report their progress and support each other's consistency. If you'd like to join, please let me know in the comments 🌸
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