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Points to check if you go through Annual report of a company as an investor.
I'll come up with examples later.
I'll come up with examples later.
• The management discussion - for where the company is headed in future.
• Notes to accounts, schedules, c/f statements.
• Whether company has large c/f from operations then it's well. should question if the profit is not supported by cash from operations.
• Notes to accounts, schedules, c/f statements.
• Whether company has large c/f from operations then it's well. should question if the profit is not supported by cash from operations.
• To read between lines check for Consistency.
If figures from past deviate a lot compared to present. Check for reasons. As what made it deviate a lot. Even in different pages of report. Numbers and story should match and relate.
If figures from past deviate a lot compared to present. Check for reasons. As what made it deviate a lot. Even in different pages of report. Numbers and story should match and relate.
• Sales growth: add quarter sales to match up with annual. Conservative accounting policies are good indicator as well but depends on sector as some sectors have relaxed rules. Company should be serious in collecting money (check debt to sales ratio )
• Check for depreciation.
It should be reasonable as profit can be manipulated by using it. Heads- R&D expenses, assets depreciation.
•Check if losses are written off as loans, if large expense is deducted from reserves, P&L is not clear or directly taken to balance sheet.
It should be reasonable as profit can be manipulated by using it. Heads- R&D expenses, assets depreciation.
•Check if losses are written off as loans, if large expense is deducted from reserves, P&L is not clear or directly taken to balance sheet.
• Taxes. Taxes insync with net profits. Check for tax incentives that has been used by company. For investors and income tax department they have different books.
• ESOP : increases the sense of ownership among employees but should again be checked which method they're using.
• ESOP : increases the sense of ownership among employees but should again be checked which method they're using.
But that's a story for another day.
• as the first point check cash. Check for Free Cash flows. Reasons behind large cash or negative. Might show negative if it's in a growth state using it for some development ahead.
• as the first point check cash. Check for Free Cash flows. Reasons behind large cash or negative. Might show negative if it's in a growth state using it for some development ahead.
• Avoid revaluation reserves and goodwill to establish networth.
• General red flags: if liabilities are written off, related party transactions (check notes to account).
• Management salary > market rates or < market rates
• General red flags: if liabilities are written off, related party transactions (check notes to account).
• Management salary > market rates or < market rates
