Annual Reports.- What to look for in?
Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Annual reports - Reading, Understanding and Discussing.
Forum Discription: Here we can discuss individual company Annual Reports. The idea is to make Annual Report reading easier and comfortable for the Non Finance People at TED
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=640
Printed Date: 18/Apr/2025 at 1:33pm
Topic: Annual Reports.- What to look for in?
Posted By: Vivek Sukhani
Subject: Annual Reports.- What to look for in?
Date Posted: 04/Dec/2006 at 9:01am
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Hi Everyone,
Annual Reports are said to contain a truck-load of information.... In US, there are specialised companies and agencies providing annual reports to investors for their information.... can we have the same thing in India???? I beleive we need to institytionalise our effort a little bit more and make it a respectable profession...With this endevour in mind, I will like all forum members to kindly throw their opinion on:
1.Whether such a thing os possible.
2.What kind of effort is required.
3.And what formalities are to be done, whether its possible to obtain sponsorship from the major Stock exchanges.
4.In what ways we can offer our help to the Investors.
I beleive, and this regard, I must admit I am greatly inspired by Mr. Basant's way of working and his devotion. So, I would like Equitydesk to take a major step in this regard and in this context, I would also like to make myself available for any effort that is required. With view to this endeavour, I am concentrating on academic aspect of the work and now I have competed 7 modules of NCFM already and am ready to give the Corporate Governance Module Exam...something which I beleive may be of some help in getting the requisite sponsorships....I will greatly glad if someone can guide me in this effort...
Regards,
Vivek
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Replies:
Posted By: Vivek Sukhani
Date Posted: 04/Dec/2006 at 9:11am
| Actually, I was greatly inspired by the reading in some of IR magazines... In India, we lack such a thing.... with so much happeneing on Corporate Governance front that I beleive we must also rise to this challenge and utilise our effort to make something meaningful in this regard... also, I beleive such a thing also provides you greater access to management and hence can of of some help in our research work as well. I am not talking only from the stock market point of view, but am talking more from Investor Protection and Investor Empowerment point of view.... kindly please throw your opinion in this regard... |
Posted By: kulman
Date Posted: 04/Dec/2006 at 10:16am
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I was greatly inspired by the reading in some of IR magazines
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Vivek jee, please elaborate on IR?
This idea of yours about Annual Reports is quite impressive....I shall try to think about the same...give me some time..
Nice to now that you've completed several NCFM modules.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: kulman
Date Posted: 06/Dec/2006 at 1:35pm
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I read annual reports of the company I'm looking at and I read the annual reports of the competitors - that is the main source of material. - Warren Buffett
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Vivek Sukhani
Date Posted: 06/Dec/2006 at 1:39pm
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I read just the accounts part, thats all i understand....
Kulman, by IR I meant Investor Relations.
In US and other countryes there are many IR magazines, which report on contemporary issues affecting the indusry as far as IR go.... so I try to read materials on them.... Infact, will be giving the Corporate Governance Module in about a fortnight-month's time...
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Posted By: kulman
Date Posted: 24/Jan/2007 at 6:39pm
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Vivek bhai
Have you been able to make any progress on this idea of yours?
If not then, why don't you begin by contacting SEBI. Put your idea across to them and seek their opinion/views. E-mail ID: mailto:[email protected] - [email protected] Tel Nos.: 022-26449188 / 26449199
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: nikhil090
Date Posted: 04/Feb/2007 at 2:09pm
| Is there any place/site, where annual report of last 5 years for all companies is available for download, even for a fee?? |
Posted By: PrashantS
Date Posted: 04/Feb/2007 at 2:12pm
| yea go to dreamgains.com.......u will find a lot of them |
Posted By: PrashantS
Date Posted: 04/Feb/2007 at 2:12pm
| and y do u need it |
Posted By: BubbleVision
Date Posted: 04/Feb/2007 at 4:50pm
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Nikhil - they are also available on BSE India website... Just put in the name or the BSE Code of the stock and click on annual reports... ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 04/Feb/2007 at 5:27pm
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BSE carries RESULTS; could you post link for detailed ANNUAL REPORTS.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: BubbleVision
Date Posted: 04/Feb/2007 at 6:34pm
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Sorry... BSE Carries Results only... NOT Annual Reports ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: nikhil090
Date Posted: 04/Feb/2007 at 7:35pm
| Well as Peter lynch and Warren buffet says, the gold is lying out there but no body will tell you about it. You will have to find it yourself. Therefore I just want to find something which is very cheap (available for free !!) and then hold it for long. It may not be very fashionable/less profitable in this growth era but in any case it helps. |
Posted By: us121
Date Posted: 31/Mar/2007 at 2:50pm
Are Vivek Saab,
Hum Rah dekhke baithe hain, aapse kuch sikne ke liye.
Hum engineers ke liye ye thoda current examples ke sath sikhna bahot jaruri hai.
in fact i tried to get some book from the market, which is easy to understand and with practical figures etc from the latest balance sheets, but could not find even one.
may be this thread of yours can be compiled as a book for meeting the requirement of many others as of mine. ------------- ABILITY will get u at d top. CHARACTER will retain u at d top |
Posted By: Vivek Sukhani
Date Posted: 31/Mar/2007 at 7:19pm
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Sir,I am extremely sorry but I missed this thread . Reading Annual reports and understanding financial statements, is something which I have always liked doing. The best thing about reading annual Reports is that you can get a feel about a host of other things which no analysts report will be able to provide.
The first and foremost thing about an Annual Report study, is to get the feel of the management. Its my request, that before one gets into the financials,its better to understand the management quality and management intent. Its easier said than done but a genuine attempt must be made. In order to discover it, look at the following aspects:
1.Simplicity of presentation. I beleive its the most critical aspect of Annual report presenation. An analyst/investor has to go through so many companies' report that at times, time's the really scarcest commodity on earth. After May end, everyday they have to go through 5-10 Annual reports besides analysing quarterlies. So,in case a company tries to add a lot of jazzy stuff, it actually is doing a big dis-service to the investor community. A good company, tries to send strong message through the Annual report itself. In this context, I will like to talk about Cipla, whose last year's Annual report was extremely simple. I was quite amazed so I asked my dad whats the cause of this simplicity. Then I found it written somewhere that the company has tried to make saving on that count and made a donation to its Cancer Foundation with that money. I know such things dont matter in this material world but someway down the line I will always like to have a company which maintains high degrees of Social Responsibility.
2.Auditors report: Extremely important to read the Annual report. Infact, the first assignment which my dad gave me when I was in class XI, was to write on top of the Annual report, whether the company is regular/generally regular/irregular in making payments towards statutory liabilities like PF, ESI, Tax authorities etc.A company which is not regular is to be avoided at all cost. Genrally regular Companies are also to be deeply studied before committing money.Look at possible qualifications.
3.Look at whether the 10-year/5-year Financial Highlights have been provided or not. A performer will always show that. Its not a boast,but its a matter of integrity to enable investors to take a call. Financial performance follows a trend, and good companies will never try to hide a bad year.
4. In case you are looking to invest into a company in which you are not invested in, them try to make a correspondance with that company and you will understand a lot of things. In this context, I must mention about three companies: Infosys, Foseco india and Abbott India. I will always like to a shareholder of these 3 companies. Actaully, I bought the stock and immediately placed a request for the Annual Report. To my amazement, before the shares were credited into my account, the Annual reports were there on my desk. In this context, I must always mention about foseco India. I wasnt able to get their e-mail address in India... so I mailed it to London. And the company had so much responsibility that they acted so very fast and fulfilled my request in no time.These are true Investor delight stocks.
5.Another important thing to look forward is to see how quickly the management is able top present its account and hold the AGM. A good management will always like to present accounts and hold the AGM very much before the stipulated guideline.Good companies like to interact with the shareholders and investing community. They therefore hold the AGM when its convenient for the shareholders to attend the same. They dont avoid the investing community by holding the AGM at the dead-end of September( for March-ending companies) so that they can avoid getting questioned as not many investors will be able to committ the time and effort.
6.Understand the Policies which the company has laid down, if at all. Policies like Whistleblower Policy, dividend policy are often laid out as a measure to maintain high degrees of standard of Conduct. Companies which have a well-laid out policies will be coveted in most of the cases.
7.Try to peek through the chairman's Letter if that's provided. Try to get a feel of the humility of the Board Chairman. Try to make a note of his intent, if you can. Sir, Investing is such a game which will make you a behavioral scientist if you take it seriously.Understand their communication. Its very very important to get a feel of the management before diving hard into financials, which is a matter of science and more easily understandable.
Gradually, I will like to write more and more stuff on Financials but just thought it important that before one gets into financials one must make some mental notes about the management quality and hence this post.
Regards,
Vivek
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Posted By: BubbleVision
Date Posted: 31/Mar/2007 at 7:32pm
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Vivek...very well written and explained. I am sure it will be appreciated by one and all!!!
BasantJi...please make this a new thread. ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: us121
Date Posted: 31/Mar/2007 at 8:07pm
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Dear Vivek, Thnks a lot for a real warm up session! Let me tell u that i bought 2 books on this subject and more or less have gone through it, i could not get such crystal clear summarised thought on gaining insight into managerial quality, the way u have explained. Eagerly awaiting for more posts from u on the same subject. Not necessarily financials, but as explained in your post, the real stuff which enhnces our judgemental capacity. Thnks, Basantji, for moving my post in the right thread.
------------- ABILITY will get u at d top. CHARACTER will retain u at d top |
Posted By: kulman
Date Posted: 01/Apr/2007 at 12:53pm
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Great going Vivek bhai.
Looking forward to read more on this subject from you.
Just before you jump onto financials/ratios, do you feel following things matter, and if so why and how:
1. Independant directors on the board.
2. Number of board meetings held & the attendees.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: s_praharaj
Date Posted: 01/Apr/2007 at 8:06pm
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Vivek,
Excellent work.
Another aspect of your personality is revealed.
You are a Teacher par excellence.
A very rare quality.
Please keep this thread alive. ------------- Shashi Praharaj |
Posted By: Vivek Sukhani
Date Posted: 01/Apr/2007 at 9:29pm
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I just tried to pen down my thought process. Kulman, the issue of independent directors is something I dont see having a major impact on the corporations. Even with independent directors, there is very often a sense of obligation and hence their effectiveness is reduced. In this context, I must say that I just cleared my corporate governance module, and there was a lot of things written about independent directors. But, candidly speaking, from my observation, I have seen very little effect of their effectiveness in our corporate scenario.
Board Meetings and Attendees, is in my opinion an umportant thing. I like promoter participation at board level. With Calcuttan companies, I try to attend the AGM to get a feel about the management as well. Kulamn, I try very very hard to read the management. I will give you one example. I remember a time when Kushagra Bajaj came on CNBC and talked about his company. the way he talked about, he dispalayed outright arrogance. It was near 550 then.....the rest is history. people like Baba kalyani, deepak parekh, the way they talk you will understand the seriousness. I have special regards for Baba Kalyani for his outrightness and my biggest miss is perhaps Bharat Forge. Havell's MD, Nirma's MD , Opto's MD.... just listen to them, you will realise the pith of their talks. Listen to Gautam Thapar..... this man will do wonders. If somebody wants to see Corporate Governance, look at GE Shipping.Communicating with GE Shipping is such a delight. I will reiterate here at the cost of repitition....when you invest in a company, you not only invest money, you not only invest time, but the most important thing you invest is faith.
Regards,
Vivek
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Posted By: kulman
Date Posted: 01/Apr/2007 at 10:54pm
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...when you invest in a company, you not only invest money, you not only invest time, but the most important thing you invest is faith....
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Vivek bhai
Very very well written. Excellent.
This faith builds into conviction based on company's performance, doesn't it?
Keep on communicating.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Vivek Sukhani
Date Posted: 01/Apr/2007 at 11:01pm
| One thing I would like to say... kindly share all pieces of opinion you have regarding corporate communications here....I am enumerating examples I know... there may be many others... Kindly do share and enrich |
Posted By: Vivek Sukhani
Date Posted: 15/Apr/2007 at 1:40pm
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Analysing Profit and Loss Accounts: Income Statement as it is also called happens to be a the first thing to look at. Balance Sheet reveals the glory of the past, Profit and Loss reveals the immediately present. So, P/L accounts have an assuring effect and at times, they revela a turnaround happening place. Before beginning, I will like to communicate the handicaps which IO face here. I have always hunted for asset backed stocks and hence I carry no expertise for service sector stocks like banking, Software etc. So, I will be glad if someone can help in that regard. Also, its extremely difficult to standardise everything, so what I will be indulging in is a genearl talk for level I before embarking on specifics. Entities involved in profit and Loss Account: 1.Sales/Turnover Turnover: Turnover represents the source of revenue. It shows the income a company makes by selling its products.So, a company always try to expand its turnover so that it can generate more and more profits. So long as marginal revenue exceeds marginal costs, the firm will try to expand its sales, subject to the limiting factors. Analysts try to look at various component of costs as a percentage to turnover to determine how much is the firm extracting from its revenues. In ratio analysis, turnover is the most commonly used component. 2.Excise Duty: Its an indirect tax paid by companies on the profuction they do. So, it has a more or less a perfect correlation to the Sales. 3.Other Income: Perhaps the most important thing we must pay attention to. They can be segregated in 2 parts:A. recurring and B. Non-recurring. Recurring Other Income is like Dividend received on Investments, Commision on service provided, Interest on loans and Advances.Such income is a regular feature and hence can be safely construed as a part of total Income. However, with Non-recurring Income, we should always examine in graeter details. Entities like profit on disposal of undertaking, tax provision write backs, Interest waivers etc. are very distorting entities. We should remove the sum of such figures from total income(turnover+Other income) to arrive at, what I call Regular Income.
5.Salaries and wages: Relatively an insignificant item for manufacturing business as they change in single digit percentage most of the time. So, they are actually a very important profit centre( looking at it as a corollary to cost centre). If a business can make a quantum leap in profits with a modest change in labour overheads, that will translate into increase in productivity.This becomes very critical when a company is passing through a tough phase in the raw material front.
6.Administrative Overheads are something which we give least importance given the size of the profit and loss account. Such expenditure are fixed and semi-variable most of the times, so its beyond the control of the management to garner anything through them to increase profits significantly.
7.Depreciation: Perhaps, the most important figure which has the potential to make a lovely business into a very lacklustre business. This is a non-cash charge and in that sense, many construe it as a source of cash. If provided at very high rates, it helps in retaining cash. But certain industries do actually have a large wear and tear cost along with amortisation charge as well as impairment charge. In such cases, high depreciation is no cause of rejoice. However, as a matter of pridence, companies try to provide at higher rates. The benefit comes in the later years when the company works on practically deprecisted assets and garners more and more revenue. In this context, it should be said that repairs and maintenance if done properly along with heavy depreciation, results in most of the cases a wonderful value creation opportunity in the future.
8.Other Expenditure and extraordinary Item of expenditure: Very very important place to look at. Good companies try to debit all the expenditure in one gowhich can be otherwise deferred. So, what may appear as a mediocre performance may otherwise be an excellent result supressed by such extra-ordinary debit entries. VRS expenditure is something to be talked of in this regard. Inevitably, companies which go for VRS, do provide wonderful investment opportunity in the longer term. Look for such extra-ordinary debits and adjust EBT accordingly.
9.Interest: Trading on equity can be wonderful so long as the marginal cost exceeds the cost of debt. However, this is one single item which can totally devastate a stock and may even trigger solvency doubts.Operations performance and finance performance are indeed two different things, although inter-related. Long term investors never view a significant debt as something good.
10.Taxation: Statutory charge. However, defferred tax charge is considered good from cash retention point of view.
11.Dividend: A matter of continuous debate. A sign of assurance for some, lost opportunity for another. Personally, I am in the former league. It helps a long term investor, if he gets good dividends both from livelihood point of view and also from reinvestment point of view. Companies try to increase the adjusted per share dividends, and companies which do that always command a premium in the market. However, one should filter out special dividends from regular dividends.
I will get into ratio analysis in the next post....
Regards,
Vivek
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Posted By: BubbleVision
Date Posted: 15/Apr/2007 at 1:57pm
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Vivek...Very very well explained everything. I am sure that this would be helpful for everyone!...Thanks. ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 15/Apr/2007 at 2:02pm
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Carry on Vivek bhai.....good one!
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: omshivaya
Date Posted: 15/Apr/2007 at 2:18pm
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Very Informative Vivek ji. Keep it up... ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: basant
Date Posted: 15/Apr/2007 at 3:01pm
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These posts are very informative for the non finance guys!! ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: us121
Date Posted: 15/Apr/2007 at 6:54pm
Vivekji,
excellent.
can u pls help us to analyse P/L and Balance sheet of Agro Tech Food in the light of various parameters mentioned as above by u.
May be some managerial quality para also if u can.
i have selected this company as there are lots of transactions under various heads othere than normal sales/ depreciation/ interest etc.
thanks in advance. ------------- ABILITY will get u at d top. CHARACTER will retain u at d top |
Posted By: basant
Date Posted: 15/Apr/2007 at 7:31pm
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With regard to ATFL some effort was made in this thread:
http://www.theequitydesk.com/forum/forum_posts.asp?TID=728 - http://www.theequitydesk.com/forum/forum_posts.asp?TID=728
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: us121
Date Posted: 15/Apr/2007 at 7:49pm
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thanks, Basantji.
could get lots of insight.
However, still if Vivek can put some expert comments based on Annual report P/L perspective, may help. ------------- ABILITY will get u at d top. CHARACTER will retain u at d top |
Posted By: Vivek Sukhani
Date Posted: 15/Apr/2007 at 10:08pm
| I will try to get a copy of the Annual report ......will write to the management, and see of they provide us.... actually the analysis starts from the very first correspondance......I beleive financials are not beyond management quality. Although I try to spot bargains yet even while calculating bargain value one should inbuilt manahement quality in the argument.So, financials are a sufficient condition and not the necessary condition.... I appreciate the gentle words of the members.Just tried to fulfill my responsibility.....will try to put in something as and when I get some time,,, Thanks and Regards, Vivek |
Posted By: s_praharaj
Date Posted: 15/Apr/2007 at 10:47pm
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Well Done, Once again Vivek,
Please keep it up with much more articles on this. ------------- Shashi Praharaj |
Posted By: kulman
Date Posted: 08/Jul/2007 at 10:56pm
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How to read an Annual Report http://www.thehindubusinessline.com/iw/2007/07/08/stories/2007070850701300.htm - (Source: BL)
Shanthi Venkataraman
The thought of poring over annual reports to glean information about a company or its growth prospects may seem terribly dull to most new investors. At a time when there is an overflow of information across media channels and scores of analysts churn out stock calls on a daily basis, you may be excused for taking the short cut and just looking up financial snapshots on the Internet. Nevertheless, the annual report remains the most authentic source of information about a company and contains important facts about its financial condition, growth strategy and current challenges that are not readily available upon an Internet search. A well-written report can give you a rare glimpse into the management’s outlook for the industry or its views on new trends in the market. So for those who do not know (or remember) what an annual report looks like, here is a quick guide to reading this document.
The manner of presentation differs from one annual report to the other; some are mini opuses that promise to be a one-stop guide to the industry and company, others barely make the cut when it comes to providing crucial information. Most reports, though, will have the following important components:
The director’s report, which will detail the company’s operational performance in the year gone by.
Management Discussion and Analysis, where the management provides an outlook on the industry, competitive scenario, new challenges and risk factors and outlines its future strategy.
Detailed financial statements of the company and its subsidiaries, as well as consolidated financials, along with the auditor’s report. The basics, for starters
You may also find pictures of happy employees participating in corporate events. Heart warming, but we suggest that you skim through all that gloss and start with the director’s report. This will give you an overview of the company’s performance across various segments and an idea of the factors that drove performance. If you are unfamiliar with the industry the company operates in, then the Management Discussion and Analysis (MDA) is the best place to begin. Clueless about the pig iron industry? Read the Tata Metaliks report for data on the global pig iron and foundry market and pig iron price trends. The report also includes an interview with Tata Metaliks’ management, which discusses some of the key events that took place during the previous year and its perception about the competitive scenario. Companies put forth their views on a variety of topics that concern their industry, be it Government regulation, consumer or user industry trends or changes in the global picture in the MDA. They then articulate their own plans to capitalise on unfolding opportunities.
Between the director’s report and MDA, you will get a fairly good idea of the businesses the company operates in, its key focus areas, the challenges ahead and the measures it has in place to improve financial performance in the year ahead.
For those who believe that it is numbers that do all the talking, the financial statements in the annual report provide you with details that you are unlikely to find on the BSE or NSE Web sites. For instance, you can figure out the extent to which a company is able to fund its expansion plans on the strength of its current operations by looking at its cash flow statements. The schedules to accounts provide break-ups of income, expenditure and other items. For instance, you may want to know what components constitute “other income”, particularly if it has been a significant contributor to profits that year. The item-wise split-up of the components classified under other income will help you decipher how much of the non-operational income is recurring in nature. You are also provided with segmental information — both geographic and business. Similarly, schedules elaborate on balance sheet items such as long-term and short-term loans. For retailing companies, for instance, inventory management is crucial and you may have to compare the inventory positions over a three-year period to understand how efficiently the retailer manages its stores. Or for cash-rich companies, the quality of their investment book may well play a role in valuations. The annual report also discloses the financial information of the company’s subsidiaries, besides providing financials on a consolidated basis. As new, high-growth ventures are typically routed through subsidiaries, companies are beginning to command valuations based on their consolidated numbers. Be sure to look at the notes to accounts to understand the accounting treatment of various revenue and expenditure items. Those who are unfamiliar with accounting practices can make-do with looking for changes in accounting policies . This might tip you off on the impact of one-time earnings or expenses. Also look for the auditor’s qualifications to accounts for any assumptions that have been made while preparing or auditing accounts. Nooks and corners
The annual report also contains little nuggets of information that could provide you with additional insight into the company. Management background: For instance, you can find brief profiles about the directors on the board of the company. The presence of directors with strong industry standing lends credibility to the management of the company. The shareholding pattern of the company will reveal the extent of promoter holding and the extent of institutional interest in the company. Production and utilisation figures: For manufacturing concerns, the production figures assume significance. The production as a proportion of installed capacity (utilisation) could give you an idea of the efficiency at which the company is operating and the headroom for further volume growth. This information is particularly pertinent if the company is planning further expansion. IPO proceeds utilisation: For newly listed companies, the progress on the expansion plans that had been outlined in the offer document and the utilisation of the IPO proceeds are also disclosed in the annual report. Notices to resolutions: Some special resolutions passed at the annual board meeting also merit attention. For instance, resolutions passed to increase borrowing limits are cues to the company’s desire to leverage its balance sheet. Explanations are also available on why the resolution has been mooted. For example, Colgate Palmolive India’s latest annual report explains the reasons for its declaration of a special dividend and a capital reduction. This list is far from exhaustive. Going through all this might mean a lot of time and work. But it does make your information more authentic than the tip from your broker friend or the analyst on TV. ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: omshivaya
Date Posted: 08/Jul/2007 at 11:10pm
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Thank you Kulman jee for all that. For me, the most important part of the Annual Report is the "Director's Report". I go through it at least 4-5 times. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: Vivek Sukhani
Date Posted: 08/Jul/2007 at 11:23pm
| Good details.....the last three lines perhaps the most important lines.....reading annual reports brings discipline into decision making.... |
Posted By: somu0915
Date Posted: 08/Dec/2008 at 5:41pm
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Hi,
I would encourage the more experienced people from finance/commerce, to regularly update this thread with more information on how to read financial statements.
This helps us non-finance guys a lot.. Being a techie, Financial statements seemed just like plain old numbers to me..
This post was extremely beneficial and I encourage other poeple to keep posting here..
Thanks.
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Posted By: manish_okhade
Date Posted: 08/Dec/2008 at 6:13pm
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Apart from all the stuff, i also pay special focus on Risk Analysis and its mitigation planned by the mgmt. Second is the market forcast from the company. If mgmt can not convince you for future outlook then its time to switch gear.
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Posted By: kulman
Date Posted: 13/Dec/2008 at 10:29am
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When you skim through a company’s annual report, don’t fail to read
http://www.thehindubusinessline.com/iw/2008/12/14/stories/2008121450731400.htm - consolidated http://www.thehindubusinessline.com/iw/2008/12/14/stories/2008121450731400.htm - statements . They could sway your investment decisions.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Janak.merchant1
Date Posted: 14/Dec/2008 at 9:16pm
Reading only annual reports is not sufficient in taking investment decisions. What Warren does (reading A R ) is just one step. And he knows that  He does not stop there. ------------- I love my money, not my opinion. So i am ready and willing to change my opinion for the sake of protecting my money. |
Posted By: Vivek Sukhani
Date Posted: 14/Dec/2008 at 10:58pm
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For that matter, Janak Sir, nothing is sufficient in taking investment decisions. ------------- Jai Guru!!! |
Posted By: kulman
Date Posted: 14/Dec/2008 at 10:13am
From personal bad experience, I guess knowing what NOT to read is also an important step. ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: deepinsight
Date Posted: 15/Dec/2008 at 12:49pm
Kulmanjee: Are you referring still to "Annual Reports" in "What Not to Read" or something else? ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: deepinsight
Date Posted: 15/Dec/2008 at 2:30pm
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saw a new book that might be relevant here.. Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage (Hardcover)
http://www.amazon.ca/Warren-Buffett-Interpretation-Financial-Statements/dp/1416573186 - http://www.amazon.ca/Warren-Buffett-Interpretation-Financial-Statements/dp/1416573186 ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: kulman
Date Posted: 15/Dec/2008 at 4:19pm
I meant brokerage research reports.....especially the ones that project FY13 EBIDTA by extrapolation. ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: somu0915
Date Posted: 20/Dec/2008 at 11:13pm
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Vivek Jee, I am very eagerly waiting for your post on the Various Financial Ratios.. Please take out some time whenever possible to enlighten us.. This thread is so important to us non-financials that I open and see it everyday to see if there is anything new by Basant Jee or Vivek Jee.. |
Posted By: Janak.merchant1
Date Posted: 31/Dec/2008 at 12:03pm
Well Vivek, I wud say that having rational investment wisdom is sufficient.
Best wishes for the 2009 year.
JM ------------- I love my money, not my opinion. So i am ready and willing to change my opinion for the sake of protecting my money. |
Posted By: Subhankar
Date Posted: 01/Jan/2009 at 7:52pm
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I read through this thread and must congratulate you, Vivek, for not only starting the thread but also for providing regular inputs which are very useful for investors who do not have a background in finance or accounts. For a long time, the only part of the Annual Report I read (or understood) was the P/L statement to find out how much dividend was being paid. Later I learned to read the Reports on Accounts, Director's Report and Management Discussions. Now I go straight to the Cash Flow statement to find out exactly how much cash the business is generating and what they are doing with it. Unless a business has strong operational cash flows, I remove it from my 'watch list'. All other figures can be - and often are - fudged, but the cash flow is difficult to fiddle with. The importance of the cash flow statement has been highlighted in Pat Dorsey's book: "The Five Rules for Successful Stock Investing" - an excellent primer on fundamental analysis. I would highly recommend that investors learn how to read and analyse the Cash Flow statement. ------------- |
Posted By: chaudhuris
Date Posted: 16/Jan/2009 at 12:22pm
Heartily agree!!! ------------- Only when the last tree has been cut down Only when the last river has been poisoned Only when the last fish has been caught Only then will you find that money cannot be eaten. ~ Cree Philosophy |
Posted By: kumardiwesh
Date Posted: 23/Jan/2009 at 1:36am
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Fooling the shareholders
Having produced more than 500 annual reports of companies in my capacity as Chief Positioning Officer (and promoter) of Trisys, India’s oldest and largest-dedicated annual reports agency, I can state unambiguously that not more than 10 of those reports were created with the express purpose of servicing the shareholder. Standard client refrain was: “Saab, annual report padhta kaun hai?” Consider my experience: The skim-the-info report: An Ahmedabad-based pharmaceuticals giant started with the brief: “Let us produce a landmark document.” Midway, the executive assigned slashed non-privileged text. Reason: “Why should I give all this information to my competitors on a platter?” The upar-upar ka report: Some commodities firm (in businesses strongly regulated by the government) will never go into detail. “Zyaada bolenge to phir government mein problem hoga. They will say you are profitable, so why do you need incentives? Please write everything cosmetically,” is their brief. When the shareholder reads the report, he disinvests immediately. The have-a-change-of-mind report: We were commissioned to create a landmark information-rich report for a commodities company, but gradually the censor prevailed. We realised why: the management wanted to buy into its own stock at low prices and any positive message would have made the exercise expensive. The information-by-weight report: On a number of occasions, we have been told, “Utna hi likhiye jitna mere Rs 7 a copy ki cost mein fit ho sakey.” So, information is rationed, pages trimmed and printing cost strictly controlled. “Zyaada likhenge to mailing cost bhi toh badhega!” The banker-and lender-centric report: An exhaustive report is created to enhance lender confidence and mobilise low-cost loans, the differential offsetting the cost of producing the report. The shareholder never gets this copy. The ‘what’ report? One company did not mail the copies to shareholders at all; a deluxe version was privately circulated among FIIs, instead. Another insisted on a print run that was a quarter of the number of shareholders. Reason: “We can always say that it was misplaced in transit.” The achhi-achhi report: Some reports are assiduously sanitised. Like a Yash Raj film, everything looks perfect. Until you discover that the company had provided an economic valueadded (EVA) section in the previous year, which has gone missing this year. The defence: “Aisa hai ji ki last year, EVA was in plus, whereas this year it is in minus.” Their philosophy: when you have bad news, duck. The suitable hybrid report: Years ago, NIIT produced a report that controlled cost and yet enhanced transparency. It simply provided a synopsis of various sections with relevant URLs should the shareholder be interested in downloading more information. You could fault them on the ground that not all shareholders would be Net-friendly but not on their “neeyat”. However, the company discontinued this practice after this. http://businesstoday.digitaltoday.in/index.php?option=com_content&Itemid=1&task=view&id=9746§ionid=27&issueid=48&latn=2 - http://businesstoday.digitaltoday.in/index.php?option=com_content&Itemid=1&task=view&id=9746§ionid=27&issueid=48&latn=2 ------------- "History does not tell you the probability of future financial things happening" - Warren Buffett |
Posted By: kulman
Date Posted: 23/Jan/2009 at 8:44am
Good confessions. Te same author had written very interesting articles http://www.theequitydesk.com/forum/forum_posts.asp?TID=359&KW=mudar&PID=69989#69989 - here & http://www.theequitydesk.com/forum/forum_posts.asp?TID=359&KW=mudar&PID=44494#44494 - here . ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Subhankar
Date Posted: 23/Jan/2009 at 10:56am
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Hi Kumar Now that you've revealed the dark secrets of Trisys (I presume Mudar didn't throw a fit!) can you enlighten fellow boarders about the extent to which cash flow statements are 'doctored', and if so, how? ------------- |
Posted By: kumardiwesh
Date Posted: 24/Jan/2009 at 2:53pm
This question should be directed at more knowledgeable members. However, one way to check whether earnings are genuine or not is to look at the amount of taxes paid by the company. Another indicator is dividends. Any company that is paying taxes to the tune of at least 10-15% of its declared PBT, not just incurring deferred tax liability, is probably earning genuine profits and cash flows, otherwise it would not pay the government in a hurry. If promoter holding is below a threshold, say 60-70% and handsome dividends are distributed, it means a substantial portion of earnings is given to outsiders. ------------- "History does not tell you the probability of future financial things happening" - Warren Buffett |
Posted By: Subhankar
Date Posted: 24/Jan/2009 at 3:08pm
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Thanks for your response, Kumar. Sorry if I phrased my question incorrectly. What I wanted to know was whether Trisys clients have ever asked you to 'fool shareholders' by fudging the cash flow statement. Lot of companies pay taxes and dividends, but do not have positive operating cash flows. So where does the money come from? Borrowings and share issues usually. Also by not paying suppliers. Some times by booking profits in the share market. All these are mentioned in a typical cash flow statement in an Annual Report. But can, and do, companies 'cook' the cash flows? If so, how? ------------- |
Posted By: kumardiwesh
Date Posted: 24/Jan/2009 at 3:19pm
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Trisys is run by Mudar Patherya.
I've nothing to do with Trisys. I just read the article and posted a link to it. Operating Cash Flow, OCF = EBIT + Depreciation - Taxes. Cook any of these and cash flow is cooked. ------------- "History does not tell you the probability of future financial things happening" - Warren Buffett |
Posted By: basant
Date Posted: 24/Jan/2009 at 7:51pm
Important for those who believe that cash flow never lies. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 24/Jan/2009 at 10:00am
If veracity of figures is what you are trying to set your gun on, then the first thing to look for is how much is ownership distict from the mangement. Companies managed by promoters, are more likely to indulge in misreporting and misrepresenting. Thats why, during the period of crisis of confidence, investors flock to MNCs and PSUs. In case of MNCs, promoters are mostly powerful, as they hold in most of the cases, more than 50 p.c of the paid up equity. They keep their nominated members on board to look at the day-to-day affairs and are najorly interested in pulling out as much as dividend as possible. PSUs are also similar. The promoter in this case, makes the mangement sign the MoU and that document set for you all the operational and financial targets. Last year, i remember very correctly, after the Board has decided to declare 3 coins a ticket as dividend for Allahabad Bank, the government jumped in the fray and made it to declare 3.5 coins as dividend per share. If I remember correctly, they did the same thing with vijaya Bank as well.
Now coming to figures, generally high payout companies tend to show reasonably correct figures. I agree with Kumar diwesh, that companies paying high corporate taxes and high dividend generally are more reliable.
Also his observation on 'cooking' is spot on. Of all the three things there, depreciation is least likely to be fudged. ------------- Jai Guru!!! |
Posted By: 9StockPortfolio
Date Posted: 25/Jan/2009 at 9:04pm
Here is good article about Hacking into Cash Flows http://oreilly.com/pub/h/1868 - Spot Hanky Panky with Cash Flow Analysis ------------- Pursuit of Value |
Posted By: Subhankar
Date Posted: 27/Jan/2009 at 1:43pm
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Thanks every one for all the inputs on cash flows.
------------- |
Posted By: catcall
Date Posted: 28/Jan/2009 at 2:42pm
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A dozen ways on inflating profits, valuations.....
Check this out ...
http://www.livemint.com/2009/01/25235053/A-dozen-ways-of-inflating-prof.html - http://www.livemint.com/2009/01/25235053/A-dozen-ways-of-inflating-prof.html ------------- There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing! |
Posted By: kulman
Date Posted: 28/Jan/2009 at 3:18pm
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“ Money talks… but all mine ever says is good-bye.” -Anon 
Ab sab shaant, I hope.
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