LON:SIS | Question On Revenue Vs Net Profits Vs Net Debt - Looking At SIS

6th Jan '17 by koconnor

2 comments 6247 reads

Hi all,

New to the board and new to investing but getting feet wet and not losing much.

I am looking at SIS - Science in Sport. (link to analysis - new browser window will open)

I see that hey have have improved revenue year on year. Good for them. However, their net profit has been getting worse/about the same.

My question: what would be reasons for this steady revenue increase but lack of net profit growth? How would I research this for future companies? How do you do it?

My other question is this: I see they have a net debt of negative -6.62m, meaning they are in profit. Does that mean money they have accumulated over the years or money they saved the last FY?

As they have so much cash (assuming that it's made in the current FY) how come they have a negative Net Profit?

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Carey Blunt

6th Jan '17

The negative debt is the cash that they have in the bank which could be accumulated over any time period. They will spend some of it in keeping the business running and get more in from the profit they make but remember that the figure there is a snapshot in time at the point they are releasing those figures.

If they are making money and not spending much on acquisitions or investing in research or marketing or whatever then you would expect the cash in the bank to go up. Of course they may shell that extra cash out to shareholders in the form of a dividend.

If revenues are increasing but the profit isn't then their costs are high, maybe due to marketing spend required to generate that level of revenue. This would be typical of a company trying to grow so isn't necessarily a bad thing, it depends on the company.

I would recommend the Naked Trader as a book to start you going with your investing journey or maybe The Little Book that still Beats the Market which covers some of the things you are asking.

You may also want to look at the Value rank or Quality rank as they combine a number of factors like these into a score that gives you some idea comparitively what the company is like.

p.s. I like that you are looking at companies which have cash in the bank. This is generally a good sign as they can use it for acquisitions or to weather any downturn. You could use a Stockopedia screen to find other companies with money in the bank and add other criteria like an increasing EPS to find companies you like the look of.

Question on Revenue vs Net Profits vs Net Debt - looking at SIS

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Koconnor

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