How to study an Annual Report?

chamarahs · 1 How to study an Annual Report? Thu Apr 14, 2011 1:00 pm

chamarahs

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Dear friends.....
still i am new to stock market... but i try to study stock market every time.. one of my friend said.... study that company annual report before you invest in that company.... i try to study it.. but cant get good idea about it....please guys can you me
1.) what are the basic to study
2.) what are the main point to study annual report....
3.) what is the most impotent in annual report....

friends if you can help us it will be REALLY GOOD HELP for Beginners in stock market.....

Fresher · 2 Re: How to study an Annual Report? Thu Apr 14, 2011 2:26 pm

Fresher

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This I had downloaded long time ago from the CSE site I think

How to Read an annual report

smallville · 3 Re: How to study an Annual Report? Thu Apr 14, 2011 3:57 pm

smallville

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An Annual Report is mostly a review of what has already happened. So you may want to ask the following questions regarding the growth of the company..

1. Check if independent auditors gave a clean bill of health.

• Look at the financial statements and check if:
1. net profits are positive, rising or falling;
2. sales are rising or falling;
3. operating cash flow after working capital adjustments is positive or negative;
4. net debt is rising or falling;
5. dividends are rising or falling (as a % of net profits).

• Look for the segmental breakdown in the notes to the financial accounts and review the sales and earnings for each segment to see if they are improving or declining.

• For all areas which suggest deterioration, look for an explanation in the discussions or seek clarification from the company.

2. How does the company actually make money?

3. What are the management’s stated plans to take the business forward?

4. What risks have management highlighted? and How are these risks being addressed?

5. Did Net profit rise or fall due to change in
a. Sales?
b. Gross margin?
c. Operating margin?
d. Interest expense, taxes?

6. Is cash-cycle rising or falling

7. Is ROE improving or declining?

NOTE: For banks, note the loans growth by segment, For real estate, note capital expenditure by geography.

More than this last annual reports, your best bet is to analyse the quarter reports to get an idea of the present status of the company after the annual report is released..

swan03 · 4 Re: How to study an Annual Report? Thu Apr 14, 2011 5:10 pm

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smallville wrote:An Annual Report is mostly a review of what has already happened. So you may want to ask the following questions regarding the growth of the company..

1. Check if independent auditors gave a clean bill of health.

• Look at the financial statements and check if:
1. net profits are positive, rising or falling;
2. sales are rising or falling;
3. operating cash flow after working capital adjustments is positive or negative;
4. net debt is rising or falling;
5. dividends are rising or falling (as a % of net profits).

• Look for the segmental breakdown in the notes to the financial accounts and review the sales and earnings for each segment to see if they are improving or declining.

• For all areas which suggest deterioration, look for an explanation in the discussions or seek clarification from the company.

2. How does the company actually make money?

3. What are the management’s stated plans to take the business forward?

4. What risks have management highlighted? and How are these risks being addressed?

5. Did Net profit rise or fall due to change in
a. Sales?
b. Gross margin?
c. Operating margin?
d. Interest expense, taxes?

6. Is cash-cycle rising or falling

7. Is ROE improving or declining?

NOTE: For banks, note the loans growth by segment, For real estate, note capital expenditure by geography.

More than this last annual reports, your best bet is to analyse the quarter reports to get an idea of the present status of the company after the annual report is released..

This is pretty helpful. Thanks Small. One rep from me Smile

milanka · 5 Re: How to study an Annual Report? Thu Apr 14, 2011 8:43 pm

milanka

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smallville wrote:An Annual Report is mostly a review of what has already happened. So you may want to ask the following questions regarding the growth of the company..

..

very helpful , once we find the answers to those qurstions then we would know the PLC is based on strong fundamentals or not.

DK · 6 Re: How to study an Annual Report? Thu Apr 14, 2011 11:04 pm

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I think by far, this is the most important question asked in this forum Smile

Last edited by DK on Thu Apr 14, 2011 11:05 pm; edited 1 time in total (Reason for editing : corrected typo)

StocksWatch · 7 Re: How to study an Annual Report? Thu Apr 14, 2011 11:44 pm

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Thanks smallville for your input here. It made me to think about certain aspects that I never thought before. + rep from me too.

mark · 8 Re: How to study an Annual Report? Fri Apr 15, 2011 12:17 am

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EXCELLENT reply,rep from me...........
*also better to focus of their strategies and developments...future plans,upper management and their experiences.........
many details are given by smallvile.............

Slstock · 9 Re: How to study an Annual Report? Fri Apr 15, 2011 2:03 am

Slstock

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Very Nice summary Smallville.

Further more:

Also if there is a temporary short coming in financials in one year( maybe the past one) for a company which had done well in the past
read the
a) chairmans comments as to why it happened
b) check to see the remedies they have taken rectify it

Even growth companies can have various set backs from time to time. The important thing is know how the management is handling it to get back on track and be stronger. This was common for even some blue chips last year which recovered/are recovering now.

Just remember a company's past is history , but what are they doing now to rectify and growth. It is good to remember the past but more important to look for the future. Good investors usually reacts on growth companies with good governance