Reading annual reports

[nitro]

Hi All,

Any good books that teaches how to read understand annual reports, flags to watch out for, different industries.

Cheers

[lonewolf]

There are some nice guide on reading the annual report on SGX Investor Guide. Check it out.

[FFNow]

Here's a simple guide to read financial statements: http://www.moneychimp.com/articles/finan...entals.htm

A good book to read on how to watch for red flags would be "The Secret Language of Financial Reports: The Back Stories That Can Enhance Your Investment Decisions".

[d.o.g.]

Financial Shenanigans is also a good book on catching red flags. I'm reading the 3rd edition at the moment. However it does presume you already know how to read and interpret financial statements.

I haven't found a book yet that explains how accounting differs across industries.

However one potential pitfall I know of is leasing. Without a thorough understanding of how the leasing company recognizes income, you can get tripped up. There are different methods to recognize income, all legitimate, but they can front-load the income, spread it out, or back-load it. At steady state it makes no difference, but when the company is doing better or worse than normal, you need to know whether the improvement/deterioration is already reflected in recent results or is yet to come.

Likewise with off-balance sheet items. You need to read the notes to the financial statements carefully to figure out whether there are hidden liabilities. Sometimes they take the form of leases (sale-leasebacks, rental contracts), other times they take the form of purchase/sale commitments (raw materials, mine output, traded commodities).

But mostly, it's about experience. Only after looking through hundreds of companies can you get a sense of what type of numbers are typical for various industries. It's like any other activity - the more you do it, the faster you get, and the better your intuition.

[freedom]

last night, I read from Business Times, it seems that lease will no longer be considered as off-balance sheet item in the new IFRS after it takes effect in 2015. Maybe it will shed more light on how companies recognize leases?

[nitro]

what is the best way for a newbie (non-finance) background to start off?

noticed SGX does offer some courses on

"36 Red Flags in Financial Reports - How to Detect Accounting Gimmicks and Fraud (A Best Seller)"

Not sure if the trainer is good, or just those 'fly by night' trainers.

http://www.sgxacademy.com/index.php?opti...ail&id=232

[FFNow]

"36 Red Flags in Financial Reports - How to Detect Accounting Gimmicks and Fraud (A Best Seller)"

Not sure if the trainer is good, or just those 'fly by night' trainers.

http://www.sgxacademy.com/index.php?opti...ail&id=232

That trainer, Sarjit Singh, is very experienced! I have listened to him talk last month and he really knows his stuff.

[kazukirai]

"36 Red Flags in Financial Reports - How to Detect Accounting Gimmicks and Fraud (A Best Seller)"

Not sure if the trainer is good, or just those 'fly by night' trainers.

http://www.sgxacademy.com/index.php?opti...ail&id=232

I went for that course last year. This is the discussion on the course that was in another thread.

[dreamybear]

In our time-starved lifestyle, I wonder why CFA or some finance society/body do not mandate companies to state at least the following information(my humble suggestions below) in ARs :

10 years' worth of data(or whenever since Co is listed if listed < 10 yrs) of :
1. Revenue (Total, and broken down by divisions / geog areas)
2. Gross Profit, Net Profit
3. GPM, NPM
4. Operating Cash Flow, Cash Flow Financing, Cash Flow Investing
5. Cash or Cash Eq, Net Cash or Cash Eq(after debts)
6. Short Term Debt, Long Term Debt
7. Gross Dividends Paid / Dividend Pay Out Ratio
8. EPS, DPS
9. NAV, NTA
10. No. of outstanding shares / No. of treasury shares
11. Significant Co. Action(e.g. rights issue, bonus shares)
12. Share Price High / Low
13. Significant Assets like FH properties, land
14. Board of Directors / Top Mgmt
15. Auditors Rpt Highlights
16. Top 20 Shareholders

I think it is currently super unproductive for investors to search through the various years of AR.
Imagine the man-hours saved for the whole world. I don't think it is that much effort for companies to compile this type of info into their AR. Granted that maybe not everyone is interested in so much info, but for people who are interested, at least mandate that Co has to provide such data to potential investors upon request.  It pays to be prudent with our own hard-earned money.

[weijian]

In our time-starved lifestyle, I wonder why CFA or some finance society/body do not mandate companies to state at least the following information(my humble suggestions below) in ARs :

10 years' worth of data(or whenever since Co is listed if listed < 10 yrs) of :
1. Revenue (Total, and broken down by divisions / geog areas)
2. Gross Profit, Net Profit
3. GPM, NPM
4. Operating Cash Flow, Cash Flow Financing, Cash Flow Investing
5. Cash or Cash Eq, Net Cash or Cash Eq(after debts)
6. Short Term Debt, Long Term Debt
7. Gross Dividends Paid / Dividend Pay Out Ratio
8. EPS, DPS
9. NAV, NTA
10. No. of outstanding shares / No. of treasury shares
11. Significant Co. Action(e.g. rights issue, bonus shares)
12. Share Price High / Low
13. Significant Assets like FH properties, land
14. Board of Directors / Top Mgmt
15. Auditors Rpt Highlights
16. Top 20 Shareholders

I think it is currently super unproductive for investors to search through the various years of AR.
Imagine the man-hours saved for the whole world. I don't think it is that much effort for companies to compile this type of info into their AR. Granted that maybe not everyone is interested in so much info, but for people who are interested, at least mandate that Co has to provide such data to potential investors upon request.   It pays to be prudent with our own hard-earned money.

I think some companies do "go the extra mile" by providing the X years of financial performance (maybe don't include everything you have mentioned) inside their AR.

It seems like the content of ARs is governed by SGX's listing rules: http://rulebook.sgx.com/en/display/displ...80&print=1

In this case, it is probably something that SGX can do. The rules require details that happen in the current financial year, not the priors.

Actually if I were an investor, I will be happy that SGX does not mandate what you are proposing. If everyone can get the same metrics easily (click of a button), then there is little incentive for the value investor to work harder. In fact, all of us have to work even harder now to earn the same keep. As Warren Buffet once mentioned "It doesn't help if all of us tip toe in order to get a better view at the concert - eventually our toes will hurt like crazy and we still can't get a better view. The key is to tiptoe and no one notices".