Skip to main content

Check company’s financial health before investing

 

   IT is that time of the year when investors start receiving the most critical communication tool from the company, namely the annual report. An annual report provides a summary of how a company has performed in the year that went by, and how it is likely to perform in the forthcoming year. For companies, it is mandatory to send a hard copy of the annual report to each and every shareholder. While a lot of shareholders merely keep annual reports aside or throw them away with old newspapers, there are important cues which savvy investors pick. In fact, for the general public, the annual report is the only financial document that they get to see. Hence, for existing shareholder, it could be the best source of information to determine the financial health of a company and to learn about any problems or opportunities in the business environment. Here are some important things that you could look for in a balance sheet.

Look And Feel Of The Annual Report

Balance sheets can be designed in any shape and size. Also, there is no mandatory rule which specifies the quality of paper to be used in an annual report. Hence, while some companies come up with a plain vanilla annual report with simple fonts, simple colours and pay little attention to page layouts and displays, there are companies which use high quality paper, take special efforts to design it and ensure that the annual report is really presentable to their shareholders. How the annual report looks and feels conveys its image and speaks volumes about the ability of a company to market itself in the corporate world. Quality of paper used in the annual report, many a time, is proportionate or signifies how well the company is doing. Sending the annual report by courier or speed post, as compared to ordinary post, could denote how important an investor is for the company.

Management discussion and analysis

This section is of prime importance for research analysts as well as fund managers. It gives you an overview of the previous year of operations and how the company performed. Besides this, most importantly, the management shares its vision for the coming year, updates on projects which are in the pipeline and thoughts on future projects. However, investors should keep in mind that unlike the numbers, this section is unaudited. Management discussion and analysis is very important to me in case of multinational companies, where there is less communication by way of conference calls or analyst meets during the year. This section gives you important clues as to the direction in which a company is thinking, how they think the year ahead is going to be for the industry and how the company will fare.

Financial statements and strength of balance sheet


Shareholders like to look at the income statement as it denotes how the company is performing in its business, how much profit the company is making and what is it earning from its core operations. Portfolio managers and analysts are concerned about the strength of the balance sheet. Look at things like inter-group loans, investments, cash and debt position in the balance sheet prior to making an investment decision. There are things like auditors qualification, or one-off expenditure which raise a red flag and need to be considered further by analysts. Then, there are things like cash flow statement which is sacrosanct for most analysts.

 


Popular posts from this blog

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Stock Dividend Yields

During a bull run, it’s very easy to ignore stocks with high dividend yields. After all, what could be more enticing than a growth stock? But in times of crisis, these boring ones tend to be the most sought after. The reason being that not only do dividends provide a cushion when the market is in the doldrums but such stocks also tend to fall less. The lure of dividend yield stocks is not easy to ignore. These stocks offer capital appreciation as well as cash payments. But logically, any company that pays a substantial portion of its earnings in dividends is reinvesting less and, therefore, would grow at a slower pace. So the trade-off is between higher dividend yields for lower earnings growth. On the other hand, companies with high growth potential and volatile earnings tend to pay less by way of dividends, if at all. Such companies would rather reinvest their earnings to sustain their growth. The capital appreciation of growth stocks is obviously higher than in dividend yield ones. ...

Women need to plan for Retirement

Plan for Retirement Online       Higher life expectancy, lower pay and fewer work years necessitate thorough planning.   Women have raced ahead of men in various fields but, when it comes to retirement planning, they tend to lag behind. Despite saving a higher proportion of their salary, compared to men, women generally do not take retirement planning seriously. Below are some of the reasons why they should: According to the United Nations Department of Economic and Social Affairs, in India, the life expectancy of women is 69 years and, of men, it's 66 years. Due to this, a woman will need an additional `55 lakh to manage her living expenses (see table).Besides, usually, women work fewer years compared to men to take care of children and family.Further, a recent study by Korn Ferry Hay Group shows that women in India earn 18.8% less than men. Not to mention, a higher life expectancy can also mean higher medical expenses as the likelihood of health ailments such as diabetes, high...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now