IT is the reporting season for some of Hong Kong's biggest companies. Understanding some of the key terms used by companies will help in evaluating whether to invest.
Profitability: Profit expressed as a percentage of the capital employed in a company. This enables investors to assess whether the company is using its capital effectively.
John Clutterbuck, a partner at Price Waterhouse, said: 'If two companies both have profit of $1 million, and if the share capital of one company is $5 million and the other $10 million, then obviously the profit is stronger in the $5 million company.' Liquidity: A measure of whether the company has sufficient funds to meet financial commitments as they fall due.
This often is expressed by taking current assets as a percentage of current liabilities, or current assets, less stock, as a percentage of current liabilities.
A company may be making profits but if it is unable to meet its debts because of liquidity problems, it could still become insolvent.
Mr Clutterbuck, said: 'This is very important as it insures that a company has funds to meet its liabilities.' Gearing: The mixture of borrowing and share capital being used to finance the business.