Should you be exploring financial statements of any kind, it is always imperative to carefully observe the gross sales and their corresponding net sales. In particular, be sure to also consider the deductions inherent in a given business model.
By using these different metrics in tandem, you can gain a far greater understanding of the underlying operations and profitability of any given business model.
Many companies tend to downplay the volatility involved in their sales practice. There may be many deductions that they would sooner “gloss over.” This is often done to make an investment appear far more attractive than it really is.
In the instance of a capital-intensive sector, such as manufacturing, there are often considerations that investors fail to make.
The bottom line: always be certain you are looking at an investment opportunity from every angle possible. Consider the sector it operates in, and how effectively the company is run based on its financials.
By carefully comparing gross sales, deductions, and finally net sales, you will be equipping yourself with prudent information. This will allow you to make the best decision going forward.