What should I look for in an annual report?

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You only look at the annual report if you are investing based on fundamentals. Otherwise you are wasting your time.

There are 2 questions that all fundamental investors ask
  • Is this a good company
  • Is this a good investment

The former is about assessing the prospects - profitability, growth and risk. The latter is about whether you can make money - capital gain and dividends.

You can have a good company but be a bad investment. This is because the price is too high relative to the value as determined by its fundamentals.

You can have a bad company but is a good investment. This is because while the prospects are good, the price is such that there is a margin of safety even if it is bankrupt.

So your goal in reading annual reports is to get enough information to be able to do the above. It is obvious that what you read should cover several years. And you will have to go beyond the company to cover its competitors annual reports as well as industry market research reports.

If you want examples of how I handled them, go to Is UOA Ltd one of the better SGX stocks?
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