“How can this be possible?” you must be wondering.
Indeed there’s a way – and you can get a lot of hints from this on whether to junk the annual report, or to explore it deeper.
Well, let me have this video do the talking.
In this video, I also talk about 8 warning signs you must watch out for while glancing through an annual report.
If you are not able to see the video above, click here to see.
Let me know your feedback in the Comment section below.
Very interesting insights.
I agree totally ‘strategic’ ‘synergistic’ are loaded words with hardly anyone understanding what it means and in what context.
As I wrote earlier the more the jargon and more hard to understand the nos. and more the explanations which make little commonsense … farther one should stay.
Another point is frequent change in senior managers – it is most likely the first sign of either promises not being honoured, managers not finding suitable working environment etc.
Indeed Sudhir. And you must have noticed, it took me 2-3 repetitions to pronounce “synergistic” 😉 Yes, you raised a very important point about senior management changes. I faced this issue during my previous stint. After releasing a stock report a week after meeting the management, I realized that the CFO whose name I had included in my report wasn’t the CFO anymore…and this issue cropped up not just once but a few times!
Vishal,
Bang on Target,,, we are eagerly awaiting the next batch of videos…
Thanks Karthik! I would suggest you lower your “expectations about the future”, because you would not like it in case I “underperform”…and then you would “downgrade” me. LOL
Excellent. The stark comparison between Temptation/Suzlon and Tata Motors Balance Sheets itself tells the story. The flashy attempt to create vividness in order to cover up messy financials is pretty much evident.
Well, Have a few questions but will wait for the complete course to pan out before asking.
I have a suggestion.
Now that you have told us how to discard/accept a balance sheet prima facie, why don’t you put up a link giving 3-4 balance sheets in downloadable format, without telling which is bad or good? The readers can then send in their comments (a contest, maybe) as to what opinion they have formed on which balance sheet, without going in to deep number crunching. This will serve mutliple purposes. One, it will ensure reader inquisitiveness and only those who wish to learn the nitty-gritty will spare the effort to do it. Second, active participation will boost the excitement for next episodes. Third, you will be certain that we the readers have correctly assimilated what you had intended to convey in the first place.
Good suggestion Bhatia Ji.. But, considering the growing popularity of Safal Niveshak, it will be a heady task for Vishal to check out all the answers 😛
Btw, we can surely exchange some mails between us on what you have suggested. It will be a good exercise to fine-tune the valuation and investment strategy, at least for me.
Most welcome anytime Manish, but I see two problems here.
One I am not nowhere near deciphering the balance sheets properly and two, even if few students exchange notes and arrive at some final answer, it is only Masterji who can tell whether our answer is right or not… 🙂
But surely am open to sharing as much as I can.
hehe…I can’t agree more on the two concerns. But, these concerns have always stopped me from making a progress with my investment plan.
I believe Master ji is always there to correct us 🙂
I have this idea on mind, Sanjeev…but plan to do so only after I first explain some basics of financial statements. Otherwise what may happen is that readers might select/reject companies without peeking through the financial statements. So let me first do the basics there, and then I’ll open a contest. Thanks anyways for your suggestion!
By the way, please don’t call me “masterji” as this sounds a bit odd. I’m just a friend. 🙂
Ok Vishal, although it was written more in context of reverence as a Guru rather than to offend you in any way. My apologies.
That’s exactly the point. Since this video covers the Rejection/Approval on the basis of “First Look”, why not one first tries to master this art first before going in for deep number crunching? Anyway, this is my opinion only hampered by my ignorance of the subject 🙁 , you are the better judge.
Thanks
No need to apologize Sanjeev! I did not feel offended at all…just that “masterji” reminds me of Chatur “Silencer” Ramalingam of 3 idiots, so it sounds a bit odd 🙂
Let me cover the basics of balance sheet in the next video and along with that, I will offer this exercise. Regards.
Vishal, IMHO (and a very humble opinion) you have been following a very right approach towards investing by instilling the basic concepts of value investing and behaviour finance through your posts, courses and Stock Talk.
It reminds me of one of my favourite movie ‘The Karate Kid’, where the martial arts master taught the young lad basics of karate in a very unconventional way. The philosophy of that movie was that there is more to karate than fighting; similarly, there is more to investing than just making money and you have remained focussed on that aspect. With each post and each passing day drilling that concept into the mind of your readers.
Different individuals are at different stages of learning and you have kept in mind this fact with your blog, kudos!
Ah Karate Kid, lovely movie. Can watch it again and again and my kids love it too. You are right about the basics and one can easily draw parallel with How Jackie Chan patiently first teaches the basics to Jaden Smith rather than proceeding straight to fighting. Here Vishal is also committed to first teach up the basics to impatient people like me so that we become independent.
Nice analogy.
Hi vishal
As we had discussed earlier,the simple ways to decipher a Annual Report,so we were bang on.We can see the vividness that is created to move our mind from the actual thing that we need to know from an Annual Report.Vividness is created by the color,the scent,the dressing etc.When we meet a nicely dressed guy,who may wearing an expensive suit,vividness is created in our mind,we start developing positive vibes about that person,before we begin to have a talk with him.Its natural for vividness to be created,but its upon us,how we come out of it.Annual reports with glossy cover pages are a way to create vividness .So Vishal you are bang on,when you say how to read an Annual Report in Five Minutes.
Have a great Day.
Happy Investing
Reni George
Yes you are right, Reni! A glossy annual report or a fancy office creates an “anchoring bias”, whereby we get anchored to the vividness of the report or the office and miss the bigger picture that could be dirty.
In fact, here is this annual report of HT Media. Even this is very innovative, but I am happy seeing the company not wasting precious money on a fancy report.
An informative video! This video series is going to be good!
I had a question. Based on the parameters you mentioned in the video above, how would you rate the Annual Report 2011-12 of KEC International? It is 140-pages long and colourful, but also informative (in my opinion). However, I noticed that the report does not have a “Chairman’s Letter”. How would you rate the Management Discussion and Analysis (MDA) and Director’s Letter section in this report? Also, in the financial statements section, I think there is some data repetition (though with some minor number changes due to standalone vs consolidated data). What do you think about this?
The reports can be found here.
Looking forward to your opinion.
Thanks Rohit! Here is my “5-minute analysis” of KEC’s latest annual report:
1. Colourful annual report + use of words like “Delivery focus”, “Cross functional teamwork”, “Forward looking” – “Vividness”
2. Straightaway to company’s performance highlights and segment-wise performance analysis – “Good”
3. Start of MD&A (page 30) talks about global uncertainty etc. but does not play any blame game – “Good”
3. Balance Sheet – High debt, but that’s the nature of infra companies. Also, the debt is not that high for such a company, plus it has fallen over previous year – “I should do a deeper analysis”
4. Receivables on balance sheet are high, but not uncomfortable – “I should do a deeper analysis”
5. P&L looks fine with sales and profit growing and no unnecessary item – “I should do a deeper analysis”
6. FCF has risen – Good, but I should do a deeper analysis”.
So, overall, I am fine with this annual report and would like to do a deeper analysis (although I am not comfortable with companies with even this high debt/equity, but I would not discard this without a deeper study).
I hope this sounds fine? Regards.
Thanks for the detailed reply. I had another look at the ‘Receivables’ entry and it seems that they are almost 50% of sales almost every year. Also, the receivables turnover is hovering around 1.5-2.5 mark, which I think is not very appealing. Another not-so-appealing part is the very low rate of increase in EBITDA over the past 3 years or so. I was mainly attracted to this company due to its diverse verticals. Now, I’ll have to think twice before taking the plunge with KEC. Thanks a lot!
Hi Vishal,
Yours’ is the most selfless news letters I have seen on the web. You really seem to be on a mission to impart knowledge. Hat’s off to you!!
All your news letters are just too good.
Your endeavour to visit different cities is most welcome. Will get in touch with you for visit to Pune.
Warm Regards,
Harshavardhan
Hi Harshavardhan, thank you so much for your appreciation! Yes, Pune is on my radar after the upcoming workshops in Mumbai and Delhi. Will keep you updated on the same. Regards.
There is some problem with my computer, it seems. Even the You Tube link is not working properly. Hope to check this one soon.
But, something like this a good short checklist is always welcome. One can zero-in on the good candidates in this manner.
That was a great post again!! And this is what I had been looking for..
Thank you very much Vishal..:)
My pleasure, Shankar! Thanks a lot for reading!
ok this video was really good, post watching the video i again read the AR of some company and out of them i found that ABC bearing does not even have a chairman statement in the AR, now for me that’s a bad thing, but am i correct in my thought process?
Hi Vikrant, thanks for your feedback! Chairman’s report is not a mandatory requirement in an annual report. What is compulsory is the “Director’s report”. So more than the presence/absence of the Chairman’s report, the words used in the Director’s report and the Management’s Discussion and Analysis (MD&A) need to be gauged for vividness.
Hi Vishal,
Thanks for an interesting post. In my case generally, as a first step, I check the moneycontrol site which shows past 5 years of balance sheets on a single page. All I want is that the companies should have zero debt(ideal) or very very small amount of debt consistently(last 5 years or 10 years). Of course the above does not apply to HDFC and HDFC bank that I hold.
Regards,
Vamsee
P.S. Let me congratulate you on creating this absolutely wonderful platform. It is awesome.
Thanks for your appreciation, Vamsee!
Vamsee, dont put too much faith in moneycontrol , sometimes their numbers do not match with the numbers given in the annual report.
@Krish
I agree with your comment regarding data reliability on MoneyControl website. Some times, the difference in numbers is so noticeable that you have to understand that some thing is wrong! That is why I try to use data from Way2Wealth website (both MoneyControl and Way2Wealth use data from Dion). Way2Wealth is a lot more accurate than MoneyControl (in my opinion).
However, I would like to know what data source do you recommend? I think it is very inconvenient to manually copy/paste data from company annual report PDF files to Excel.
Rohit, I found one website called craytheon.com, their data is reliable the only problem is that they have a small number of companies in their database.
Thanks Krish! The website sure looks good. But the limited number of companies and the high cost don’t make it a good deal. I guess I’ll have to keep searching or wait for Mr. Vikas to answer my question (in response to Neha’s query).
Dear Mr. Vishal,
I read most of your articles and they are truly enlightening. Your articles greatly helped me change my investing style. To perform in-depth fundamental analysis, I could not find enough financial data on BSE/NSE website on the companies I wish to study. Financial statements are available only for 2 past years, but not for the last 10 years. I would appreciate if could tell me which are the best websites (both paid and free) I can use to analyze financial data of any companies I like, for the past 10 years and make comparison with its peers etc. Thanks again.
Thanks Neha! You can chek out Morningstar India’s website. I thinbk they have a good historical data collection on Indian companies. As for a paid service, check out Ace Equity or CMIE’s Prowess (the former has a better user interface). Regards,
Hello Mr. Vishal .. Thanks for the website names! When you refer to Ace Equity, I assume you refer to aceanalyser[dot]com? Also, how would you rate the Capitaline Plus database as compared to the ones you’ve mentioned? CMIE’s Prowess is 90k per year, whereas, Capitaline Plus is 150k per year.
Hi Rohit, I think this is some other product from the same company. Here’s the link to the page on Ace Equity – https://www.accordfintech.com/ace-equity.html.
I’ve never used Capitaline, so won’t be ab;e to comment on that.
@Rohit I have taken montly membership on craytheon.com for 500 rs for learning fundamental analysis. If I make lot of money then I will sign up with ace equity for 1 lakh rs 🙂
@Neha you can get 10 year financial data for free on craytheon.com
@Krish & Vishal Khandelwal
I enquired a bit about Ace Equity and Capitaline softwares. From what I hear, the Ace Equity guys used to work for Capitaline and kinda ‘took’ the data, modified it and the result is Ace Equity. Supposedly, there’s a legal tussle going on regarding this. Is this true? If it is, it kinda puts a question mark on long-term existence and ethical standing of Ace Equity.
Thanks Rohit! Yes, if that’s true then I’ll raise this question the next time I talk to them. This is indeed an issue. Thanks for sharing!
Hi Krish,
I visited craytheon.com, they’ve mentioned that they have database of only 47 companies. Is it true? Also want to know can we run customized screens on this database?
Regards,
Avadhut
@Avadhut, I just checked, they have 48 companies now, they keep on adding new companies regularly. Infact as a premium member I had requested them to add BHEL, Oriental Bank and they added them quickly.
I have no idea about customized screens, maybe you can email them directly.
@Rohit – I did not know this, imagine paying a lakh rs to ace equity and next day the company closes down because of a court order.
@Krish
Hey! So you’re still with Craytheon? Or have you found another source? Till now, I’ve used ACE Equity and currently trying out CMIE Prowess. ACE Equity was easier to use and had useful automated screeners. CMIE Prowess sure has better in-depth data but doesn’t have automated screeners (you have to build one and it’s not that easy) and their user interface is too dated. So, I’m not sure whether I’ll renew Prowess subscription. Don’t have the guts to try out the 150k per year Capitaline Plus! Any other ideas?
@Vishal Sir
Are you still with ACE Equity?
No Rohit. I am not using any database as of now.
Hi Vishal,
Generally, companies’ annual reports comprise of both standalone and consolidated financial statements. So when we analyze the numbers, to which set of data we should place more importance, is it the standalone or consolidated numbers? Please explain.
hi vishal,
was a freak chance when i happened to stumble over this website….my profession is aeons away from finance but i learned finance in the last 5 years reading all books i could lay my hands on……however to be very very honest the insight that your articles give me are something which i could never have mastered from all the books i have read….and yes i am a very ardent fan of ben and his disciple…..that my lack of an elementary knowledge in finance always seemed to be a hurdle while analysing securities….but in the last couple of days i think i have learned more than i expected to….Hats of to u…u r like a virtual teacher to me since i hit upon this site…let me know if i can in anyway be of any assistance to you….i would consider it my priviledge
Hi Vishal,
This is truely an awesome and a powerful video. Thanks a lot for it …
My only question is : Only the investors of the company receive annual reports yearly. How will i get an annual report of a company for analysing if i am not its shareholder? Apologies for asking this silly question.