Friday, October 17, 2014

Besides numbers, what to look for in an ARs

There is no end to numbers and ratio when I dig a company ARs. Maybe I share some of my thoughts when reading annual reports qualitatively.

1) management assessment of industry:

You can also read about the management outlook. You can read if it's pessimism or optimism is valid. The safe approach is always to be conservative and surprise on the upside. But I have read reports where managements stick their head out and say their see growth pockets or headwinds. It is ok to be wrong ocassionally, we Are no oracles, but if they are right most of the time, it would be good. It is important that management is Ernest and sincere in their assessments, and not always give standard balance assessment. Remember a broken clock is right twice in a day.

Although it might be difficult to understand when a CEO speak about specifics of the Industry or product, it is very useful, as we can google it, wiki it or read it over a few times to understand it. We cannot understand it like an industry Insider, but we should still learn. Be wary of motherhood statements. Meaning it is laden with adjectives but not specifics. E.g. We continue to pursue R and D to provide innovation to value add our propositions to customers. Then ... ... (Examples Will be very welcoming please!)

2) Identification of growth areas:

MTQ identify growth areas in 2002, and never look back from their niche area in the O & G sector. The same goes with sembcorp industries, and ST. engineering. Growth areas can be new products or new markets. Such as a new country which they break into.

3) Focus

If a growth area is identified, is there consistent milking or efforts to make it works. And if it works, is that constant attempts to scale it up. No point keep hitting on different products, services or markets.

While it might sound contrary to what is said above, if a product/ service/ or market is proving to be of less snergy value with no results to show after years, e.g. Unable to scale after many years, restructure it or sell it.

4) SiZe and integration of services

Many of the Temeask owned companies, very often merge/ combine/ before branching out in a big way overseas.

5) candidness

Warren has talk about this, I do not wish to be a broken recorder here.

6) Focus on the people

May be a coincident here, but I notice some names tend to change as company expand into new areas or expand. CES got senior executive from Wingtai. CES has been on a roll. MTQ has a new director when they expand overseas. Shares option only for directors and executives only or also for employees. It show if they are paying lip-service when they say they value human capital. Is the data on productivity per head.

Conclusion

Do note that it does not mean these readings and analysis will pitch u a winner in the market, but maybe make more sense and know what to look for when reading.

If you have other points when u read annual reports or do researches. Let me know and drop me a comment, will ya

Thanks in advance,
SI

6 comments:

  1. I look at the quality of the printed report. It is high class? Is it cheap? Does it come with cd etc? It shows how much they spend on such things. May or may not reflect company culture.

    I look at the graphical representation of the financial figures. I pay attention to the things they trumpet and they things they gloss over. In bad yrs, they'll totally gloss over earrings per cent and focus in revenue etc. Compare it across years to again see company culture.

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    1. Hi LP, agree about the consistency of format of reporting. The sembcorp industries reporting format is very consistent, the ratios, the quality review of 5 years. Yup, the culture of transparency is evident.

      I have also seen those who some years report some ratios and some years gloss over it ...

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  2. Besides quantitative aspect, I also looks at qualitative aspect from the AP like what you've mentioned above. One area I do pay attention to is on the size of the share holding by the senior management team of the company.

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  3. Yup yup ... Owner cum operators is good, they care about their business. But caring for the long term wellness of their business does not mean they care about shareholders

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  4. hi si,

    i look for hidden undervalued gems as well as who's who on the BOD.

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  5. Hi Paul,

    I start to take more notice of the who is who on the BOD now, but besides their appointment and creditals, and hardly know their track records.

    Blue chips we will see some more known names, but also do not know how good they are

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