Hi Jun and community,
The Growth Score Guide says that we should be looking for businesses with a Gross Profit to Assets ratio above 1. Does this mean above 100%? I have a portfolio of 15 stocks; they have GPA ratios ranging from 0 to 100%, some get close to 100%, but none above that. But thinking about it, isn't this ratio akeen to the interest rate on a bank account? For example, if I earn 2% on my bank account, its GPA would be 0.02? Would it not be quite hard to find a business that gives you more than 1 over just one year?
Regards,
Here's some more info on GPA that I wrote.
https://www.oldschoolvalue.com/blog/valuation-methods/osv-growth-rating-system/
With the ratings, a point to keep in mind is that it's a rating and ranking system, and not a screener.
A screener will only display the stocks where GPA is > 1.
A ranking system does not. It could display in descending order 1.5 down to 0.4
It's different to interest rate because what the ratio looks for is how much a company is able to generate profit off every dollar of assets.
This gives you insight into how efficiently a company is run as well as how strong the business model is.
A company making > $1 off $1 in assets is excellent. Think low capex businesses. A company making $0.05 off every $1 of assets, not so great.
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Here's some more info on GPA that I wrote.
https://www.oldschoolvalue.com/blog/valuation-methods/osv-growth-rating-system/
With the ratings, a point to keep in mind is that it's a rating and ranking system, and not a screener.
A screener will only display the stocks where GPA is > 1.
A ranking system does not. It could display in descending order 1.5 down to 0.4
It's different to interest rate because what the ratio looks for is how much a company is able to generate profit off every dollar of assets.
This gives you insight into how efficiently a company is run as well as how strong the business model is.
A company making > $1 off $1 in assets is excellent. Think low capex businesses. A company making $0.05 off every $1 of assets, not so great.