Novices look at the income statement, experts look at the cash flow statement and the balance sheet.

So, how to look? Methodology:

1. First, see if the profit is supported by cash:

Operating cash flow / Net profit attributable to parent company

Cash received from sales / Revenue

Whether accounts receivable deteriorate along with revenue, or actually decrease when revenue grows

2. Then, see if the position of working capital is correct:

Accounts receivable decrease + Cash collection strengthens: Real demand, strong bargaining power

Inventory rises + Construction in progress rises: Indicates the company is preparing for future deliveries

Contract liabilities / Prepayments rise: Indicates orders are starting to turn into cash and production actions

3. Next, see if capacity is already expanding:

Construction in progress

Fixed assets

Cash paid for the purchase and construction of fixed assets

4. Finally, see if the expansion is risky:

Net debt

Changes in short-term/long-term borrowing

Whether financial expenses are starting to significantly erode profits

The logical chain is as follows:

Real orders -> Cash comes back first -> Accounts receivable don't deteriorate -> Inventory and construction in progress rise -> Capital expenditure surges -> Subsequent continued capacity expansion materializes