If you have been an investor for long, you must have heard about Jim Rogers.
Rogers is a leading global investor and commodities guru, and has an amazing track record over the past few decades.
When someone once asked Rogers what was the best advice he ever got, he said it was the one he received from an old man in an airplane.
The advice was ā Read everything.
This advice is also one of the best ones I can give you when it comes to being an investor in stock market. Read everything.
Charlie Munger, Warren Buffettās business partner, says so often ā āIn my whole life, I have known no wise people who didnāt read all the time ā none, zero. Youād be amazed at how much Warren reads ā at how much I read. My children laugh at me. They think Iām a book with a couple of legs sticking out.ā
You can outsmart 99% of all investors
If you get interested in a company and you read the annual report, believe me, you will have done more than 98% of the people in the stock market.
And if you read the notes and schedules accompanying the financial statements in the annual report, you will have done more than 99% of the people in the stock market.
As Iāve realized over the years, if I just literally read a company’s annual report and the notes ā or better yet, 4-5 years of reports ā I would know much more than other investors out there.
But I realize that most investors don’t bother even doing this basic homework.
So when people ask me why 99% of people donāt succeed in stock market investing, my reply is, āBecause 99% of people donāt read annual reports!ā
I look at an annual report not just as a collection of pages that a company (whose stock I own) sends me at the end of every year, but as a communication link between me and the companyās management ā a report of what the management wants to tell me about the companyāsā¦
- Past performance
- Opportunities and challenges in the future
- Big risks the company faces
- Financial standing and track record
- Industry performance
I am not sure if you, as an investor, can get your hands to a better source of āinsiderā information about a company.
Although, given widespread accounting scams, you must not trust whatever is written in the annual report on face value. But the report still gives you a starting point to look deeply into the company, get your answers, and also the questions that you must explore further in your analysis of that stock.
How to read an annual report?
With the view of bringing the annual report closer to you ā believe me thereās no better romance in a companyās analysis than to read its annual report ā I am working on a āclassroom seriesā of videos that will help you understand the annual report betterā¦
ā¦so that you can appreciate its importance and know how to read it to make better investment decisions.
I start with the basics of an annual report through the following video. This will show you the importance of reading an annual report and the key sections that will give you a lot of ideas in what the company has done in the past, and where it is heading in the future.
So letās start right here. If you are not able to see the video below, click here to see.
Let me know your feedback on this video in the Comment section below, so that I can improve upon my efforts in the future.
Very true Vishal and I learned this lesson hard way.
And the most important thing is to read atleast last 4-5 years annual report. I did the blunder in case of Emkay Global, where in I invested because the stock was trading at below net working capital less debt and P/BV of 0.4x lowest ever. Without going into details, if I had read all annual reports right from FY2008 I would realized its loose accounting practices in relation to provision for doubtful debts which I suspect is because of some questionable revenue which it recognized in FY2008.
Thanks for your feedback, Anil…and thanks also for sharing your experience.
As Sri has mentioned below, see if you can write a brief on the loose accounting practices that you saw in case of Emkay. It would be really helpful for other readers, and you don’t need my permission to write that anyways š
This post is in continuation to what I wrote earlier on loose accounting practices followed on provision for bad debt by Emkay Global
All the figures refer to consolidated revenues:
Recorded sales in 2008 was 139 crores (2007 64 crores) ā This is line with peers, so not much of a problem.
Receivables 66 crores in FY 2008(PY 20 crores) ā though in brokerage industry receivables reflect the sum receivable for trade executed and not just commission and just not correct to compare receivables with sales, but outstanding of a large sum of this amount even in 2009 should raise suspicion.
In 2009 it showed receivables outstanding for more than 6 months at INR 25 crores but it was not until 2011 that it made full provision against this outstanding (it made provision in instalments of roughly 1/3 starting from 2009). Now in brokerage business if someone is disputing sum (I presumed this as the sum is not paid) and it is unsecured, conservative management should immediately make 100% provision against it. Neither had they made provision nor did they consider necessary to make any additional disclosure against how and why such large sum had become bad debt (18% of 2008 revenues). Now this could be genuine bad debt caused by bad luck or reckless trade executed or attempt to show better revenue through bogus revenue or anything else. But the problem is management silence on this whole episode, atleast in management discussion and analysis.
Now when I invested some time back my logic was it was Trading at below net working capital less debt, brokerage business is currently depressed, operating leverage is high, itās a debt free company and operating expenses can be cut by firing employees if things go bad. All this things still hold good, but the problem is I do not trust the accounts anymore. I just studied annual report of 2011 and assets looks fine and even in its latest quarterly report by then I did not notice anything suspicious. What raised my suspicion was in Q4 FY12 results, despite a fall in revenue their receivables had increased from INR 40 crores to INR 60 crores. Now again this can be genuine increase or reckless trade executed or attempt to show better revenue through bogus revenue or anything else.
Seriously.. Awesome.. I was asking one of my CA friend to help me decipher Annual Report. I have tried reading some, of course after your session in Bangalore… Although it looks very simple and I understand what’s written but don’t understand the nitty-gritty and what to take out of it.
I also tried getting the valuation of Graphite/Infosys/Clariant etc, the one you have explained by different method but wasn’t able to get to value, maybe I was doing something wrong or didn’t understood fully. As he is a tax consultant and these 3 month he is busy in filing ITR(btw he works for PWC).
I was searching for some good tutorial and how/where to start and here you are :).. “God Help Those Who Help Themselves”.
Hi Ashutosh, I can understand the problem you must be facing starting out in your study of annual reports. But don’t worry, as with practice, you will be able to see through it clearly. Thanks anyways for your feedback on today’s video.
Wow, you just made my day Vishal. Thanks a tonne.
My long pending request has finally been fulfilled. Reading, analysing and interpreting the balance sheet has been one of my Achilles’s heel, and I am sure the same will be the case for many other accounting-challenged people out there. Though I had gone through a few books also like The Interpretation.. By Graham, my understanding of the concept was woefully short. Now with the superb hand holding you are providing, I feel sure I will be able to remove this deficiency.
I have to confess something here. Though I had been looking at the primary data like NP, ROE, ROCE, P/BV, PE etc etc, I had NEVER given even a glance to the balance sheet. It is only AFTER going through the Smart Investing Course here and following the methodology of finding Intrinsic Value as given in various Stock Talks that have realised the importance of balance sheet and its proper interpretation. I would really like to recommend all new comers here to read and assimilate the various concepts given in the smart investing course.
Now waiting anxiously for further parts. It is difficult to wait, so I would request you to post the subsequent parts as soon as possible.
Thanks once again, and kudos for this wonderful initiative. Feel proud to be tribesman Safal Niveshak.
Thanks for your feedback, Sanjeev. Also, it’s great to see an investor confessing his mistakes here, as not many people have the gumption to do that on a public forum. So congratulations, and thanks for sharing! Your experience serves as a great lesson for all other readers of Safal Niveshak.
I have noted all your suggestions, from this comment and the ones below, and would try to cover them soon. Regards.
It is easy, Vishal, to admit one’s mistakes once you realise that the First and Foremost requirement of removing your deficiencies is to first acknowledge that you have one…. š
Indeed Sanjeev! Call it coincidence, but here is something similar that I wrote on my Facebook Wall yesterday – “Laugh at your problems, because everybody else does that.” š
Vishal… Its a fantastic video. really informative…
vishal it will be better to get some balance sheets of companies which are known for all wrong reasons and learn to identify those warning signs. from the balance sheets….
The example shown for Colgate has virtually zero debts..
We can rather take companies which are having a decent debt exposure and identify the various signs..
Thank you Karthik! Yes, I will be starting off with the balance sheets investors must watch out for, given that lessons on “things to avoid” are more important than lessons on “things to do”. Thanks anyways for your suggestion! Regards.
Vishal .. We need your views on these companies….
Colgate/ Glaxo / TTK / Page /Hawkins / VST..
these companies have almost nill debts/high profitability and ofcourse the price is increasing day by day and with no signs of retreat..
how we should identify the right pricwe??
Karthik, here’s my view on all these companies – “Great businesses, but dangerous investments at the current valuations!” š
You can identify your buying prices for these stocks by using the formulae I’ve talked about in the StockTalk reports.
Sir,
What is the Stocj Talk report? Can you pls share it with me? Thanks
BTW, there is one request. Please be more detailed on analysis working capital, implications of negative/positive working capital values and their impact on Intrinsic Value etc. This is one of the more confusing parts.
Thx.
Also, please also let us know how to look out for possible fudging of Balance Sheets, and how to avoid these. As I have heard, it is possible to flasify Profit figures but impossible to do so with cash flow. I would request to take up such a balance sheet (like Temptation) and explain these pit falls step by step.
Noted all your suggestions, Sanjeev. Thanks for the same!
also issues concerning debtors,receivables,provisions…how to correlate these!!!! eagerly awaiting the lessons vishal..
Annual Report is an interesting document and a must read (though I myself hardly do) and at times a very revealing document provided you know how to read it and what to interpret from it.
The way to do it is (like any other skill) to learn the first steps in tutorials/ reading material, read a few annual reports, apply your learning and read a few more.
You also have to be willing to keep learning since accounting and reporting standards are modified from time to time. At times these changes make comparisons (between two annual reports of different financial years of the same company) difficult and I have seen people with accounting background struggling to explain in simpler terms the confusing accounting language (which I believe is part self created to ensure longevity/ justify existence of the profession – no offences though).
In simple terms the more complex the financial statements or more difficult to decipher words/ explanations, farther you should stay from such enterprises !
Hi Vishal
Good Morning,Hey you can read people’s mind also ,I think so,remember when you asked for some questions to be put forward to Mr.Bakshi,i commented on it on 29/6/2012,well you are bang on,that is decoding a Annual Report of the company.A annual report well tell many things of the company,the language structure used in the chairman’s letter will tell whether he is providing a rosy picture for the future,or he is putting up the facts right.Remember Temptation foods annual report.This is one of the best things that you are doing vishal,reading the annual report will trim lot of unwanted stocks from the list that you intend to buy,i have rejected lot of stocks on these parameters .Carry on Vishal.Special Accolades to you.Ek Dua Tumhare liye:Khuda tumhe is duniya ki har khushi de.
Thank you so much for your appreciation and good wishes, Reni! They mean a lot to me. Thanks also for your feedback on today’s post. Regards.
Very good initiative Vishal. Its great to go through nitty-gritty of an annual report in this manner.
Also, as Sanjeev mentioned if you can elaborate a bit on the working capital part or some other financial shenanigans that can be detected or cross checked then that would be icing on the cake :0
Thank you Manish! yes, I have noted Sanjeev’s suggestion and now the same is on the top of my mind…and priority list š
One thing I have noticed. The quality and range of comments on various posts have been getting better and better with every post. It has become a great learning process not because of the posts only, but also various comments which provide alternate views, suggestions and also helps in gaining from other’s experiences. I think all tribesmen of Safal Niveshak deserve a pat on their back for this. Keep up sharing, folks. š
Exactly Sanjeev! That’s the beauty of it being a “tribe” that is of its people, by its people, and always for its people. š
Dear Mr. Vishal,
Thanks for this excellent article and video lesson.
I would be grateful if you could provide us video lessons on how to calculate intrinsic value with examples taken from any of your past StockTalk reports. This will help us know which are the set of numbers you derive from financial statements to calculate DCF.
Kind Regards,
Nasrudeen
Dear Mr. Nasrudeen, thanks a lot for your feedback and suggestion. I’ll try to work on the suggested videos in the future. You can however see a basic video on calculating “present value” near the bottom of this page – https://www.safalniveshak.com/investing-classroom/
vishal
good initiative. but as always, have different view.
Annual Report is end product of various accounting processes.
As sudhir rightly said
//I have seen people with accounting background struggling to explain in simpler terms the confusing accounting language (which I believe is part self created to ensure longevity/ justify existence of the profession ā no offences though).//
it is difficult for layman to just pick up a report and understand inspite of best hand holding unless one is through in understanding the principles and practice involved in preparing the annual report.
How many investors read the notes on accounts which contains best choice of words to camouflage the real implications in financial statements and to avoid audit qualifications. (it helps one to build good vocabulary if he goes through notes on accounts regularly…)
It DO require learning from basics and also one has to keep abreast of latest changes in accounting policies announced by the regulator regularly. For example recent schedule VI revision, IFRS conversion. Otherwise credit sussie case will repeat.
just to bring in alternative view..
Thanks Sri! But I would disagree on your point that it is difficult for a lay investor to just pick up a report and understand what lies inside it. My definition of a “lay investor” would be one who is not bothered to do even some hard work to pick good stocks and instead depends on expert advice. On the other hand, an investor who is willing to do this hard work isnāt layā¦but is a “smart investor”.
Also, when an investor has a clear checklist while analyzing companies, he or she can simply know which annual reports he must pursue deeper and which he must avoid instantly.
That is also the reason why it is so important to focus first on simple businesses and the ones inside your circle of competence, because this process itself cuts out all those businesses that are difficult to understand (and thus might have complex financials) and those that are run by unscrupulous managers and accountants.
I mean, for businesses like HUL, Colgate, Page Industries, Titan etc. it isnāt in the companiesā interest to play with their financials at all, given that they have nothing to cover up.
In the same way, when you are dealing with companies from the infrastructure, real estate, banking, Reliance Group, or āhotā sectors, you can start out with the assumption that you are investigating someone whoās guilty till not proven innocent. For such businesses, you will always start by searching for āwhat could be wrong ā instead of āwhat could be rightā.
It is here that managers and accountants fail to recognize their own work (mess) after a certain point of timeā¦simply because they (the conscienceless managers and accountants) lack a good memory despite having lied in the past…and then they have to resort to all those accounting adjustments to cover up their past lies. This isnāt mostly the case if the business is simple.
I have a similar view with respect to the āNotesā. Simpler the business, simpler and saner will be the notes.
I believe an accounting scam is like common cold. You canāt 100% protect yourself against it and it will repeat time and again. But you can definitely reduce your chances of getting hit by maintaining proper health and hygiene. And for that, you donāt need to keep yourself abreast with every new brand of paracetamol (new accounting rules). Just a plain, simple Crocin or better a warm water gargle (akin to broader understanding of financial statement) would work most of the times.
This is purely my personal view, and I would love to hear what you (and other readers) have to say on this. Regards.
Thanks Sri, for bringing an alternate view. Your action has prompted our affable Masterji š to put in his detailed comments which, by the sheer quality, simplicity and depth, should have been a part of the main post itself. This is what I meant by quality of comments in one of my comments above.
Coming to the point, I also agree with Vishal that it is not Rocket Science to learn how to interpret Balance Sheets. I have come across many amateur (Smart) investors who, though not qualified in accounts/CA, can dissect a Balance Sheet in minutes. On the other hand, I am yet to see any of my CA friends to properly analyse a Balance Sheet before investing (if you call that investing, that is.) Atleast here in Ludhiana, many of the brokers are CAs and all they do is speculate or day trade. I think it depends on the individual concerned and his willingness to work/learn. As I have pointed out above, this was one of my weak areas. When I came across the IV calculation in stock talks, I pounced upon the method, got few balance sheets of my own, made excel sheet and literally bombarded Vishal for his opinion and to point out my mistakes, which he has been kind enough to do promptly despite his tight schedule. Although I am not even 10% there, atleast I have begun on the learning curve. Now this video classroom series will further enhance the knowledge process.
Vishal, ” guilty till not proven innocent” really takes the cake… Glad to see my favourite avoidance group Reliance in it.. š
I mean, for businesses like HUL, Colgate, Page Industries, Titan etc. it isnāt in the companiesā interest to play with their financials at all, given that they have nothing to cover up — True to ur point Vishal…
hi anil kumar,
// Without going into details, if I had read all annual reports right from FY2008 I would realized its loose accounting practices in relation to provision for doubtful debts which I suspect is because of some questionable revenue which it recognized in FY2008.//
with vishal’s permission, can you write a brief on the loose accounting practices….
as in my view, it is impossible to change suddenly the practice followed and in case if the company changes its accounting policy, the net effect due to change of its accounting policy has to be disclosed. The audit report has to draw the shareholders attention to this net effect.
can try to read myself, but since time is constraint, request you to post briefly.
thanks.
vishal,
this brings me to our discussion on return on assets…
accounting and investment texts defines this ratio differently which is what i quoted in that post. May be modified ratio would’ve given good results but whereas i still feel basic accountant defined ratio is more correct academically.
That was a wonderful video Vishal, I really loved it….Eagerly waiting for the upcoming videos….
Great job, again..:)
Thanks Shankar!
vishal,
Thanks for your detailed comments.
First let me make it clear my intention is not to discourage but just to bring out complexities involved in the accounting subject. Points made by you was never in my radar while making the above comment.
Anyway, let me answer….
1. lay investor and smart investor – honestly do you feel smart investor need to read annual report…i thought the post is to empower the lay investor…main objective of safal niveshak…may be misunderstood….
2. on your point regarding checklist, feel it is not relevant to the issue since it comes in next stage…because if one has reached a stage of having clear cut checklist (thanks to vishalji), definitely he may not require the reading part.
3. // important to focus first on simple businesses and the ones inside your circle of competence, because this process itself cuts out all those businesses that are difficult to understand (and thus might have complex financials) //
accounting has no differences as such…for it, every business is the same. what i intended was, it has many complex treatment of items disclosed in the financial statements.. for example, stock valuation. one need to know AS 2 to understand the valuation and treatment of stock is correct and consistent over the years.
Depreciation , you need to know AS 6 …
recognition of revenue. foreign exchange fluctuations etc.,
why is this necessary because it is permitted as generally accepted accounting policies, any change involving a small note on accounts will be very difficult to dissect. Some of the recent examples are biocon, hdfc, jsw etc…may think the companies are involved in wrong accounting treatment whereas it may be due to change in accounting policy which is perfectly in tune provided proper disclosure is made. Now crux is to understand whether it is right or wrong…again here read the anil kumar comment above….his write up may throw more light.
//and those that are run by unscrupulous managers and accountants.//
dont think commented any thing like this or given such impression in my comment…so am avoiding it.
//I mean, for businesses like HUL, Colgate, Page Industries, Titan etc. it isnāt in the companiesā interest to play with their financials at all, given that they have nothing to cover up.//
This is corporate governance as the present day terminology goes. otherwise simple old good management. I fail to understand how my comment has been so loosely interpreted to cover all those items which are not intended or in my radar when i made that.
I repeat what i made was trying to bring the complexities involved in treatment of various heads of income, expenditure, assets and liabilities. It will be difficult to learn so easily from annual report and one has to go through basics for some months before coming to read annual report. that is all. nothing more.
//In the same way, when you are dealing with companies from the infrastructure, real estate, banking, Reliance Group, or āhotā sectors, you can start out with the assumption that you are investigating someone whoās guilty till not proven innocent. For such businesses, you will always start by searching for āwhat could be wrong ā instead of āwhat could be rightā.//
same answer as above. you are coming out with solution in such cases whereas am confining to simple core reading the annual report without reasonable accounting base.
//It is here that managers and accountants fail to recognize their own work (mess) after a certain point of timeā¦simply because they (the conscienceless managers and accountants) lack a good memory despite having lied in the pastā¦and then they have to resort to all those accounting adjustments to cover up their past lies. This isnāt mostly the case if the business is simple.//
this is not true vishal. besides feel this is certainly beyond my limit to respond to this. I have explained in answers above, how difficult the accounting job is ….so leave it to your conscience to think ..
//I have a similar view with respect to the āNotesā. Simpler the business, simpler and saner will be the notes.//
Thanks
//I believe an accounting scam is like common cold. You canāt 100% protect yourself against it and it will repeat time and again. But you can definitely reduce your chances of getting hit by maintaining proper health and hygiene. And for that, you donāt need to keep yourself abreast with every new brand of paracetamol (new accounting rules). Just a plain, simple Crocin or better a warm water gargle (akin to broader understanding of financial statement) would work most of the times.//
respect your views vishal and since i have different view, leave it there.
regards vishal, it is really nice interacting with you..
Thanks Sri! Thatās the entire point of a healthy discussion ā that contrasting views must co-exist, because if we all agree with each other, then thereās something wrong somewhere. š
So I appreciate your views on annual reports, and please donāt consider my response as negating the same. I respect your views, and there is no doubt about that.
While some points made by me, and as you have rightly indicated, might not have been exactly in response to the points you made in your earlier comment, the reason I made these points was to bring out my view in totality about my understanding of annual reports and the relevance of same for investors.
As for your point about the need for smart people to read annual reports, yes I believe that. Finding ideas is a function of cumulative knowledge over time, which is what smart investors are focus on (thatās why they are smart :-)). So the āwillingnessā to learn is what would make an investor smart, which I believe a lot of Safal Niveshak tribesmen are.
At this point, I also remember what Einstein said ā āThere are 5 ascending levels of intelligence: 1. Smart. 2. Intelligent. 3. Brilliant. 4. Genius. 5. Simple.ā And that is my āsecretā mission via Safal Niveshak ā to make smart investors simple. š
As for checklists, I believe checklists lie at the top of any investment process. You first create a checklist, and then you do everything else ā like reading the annual report to know about the company and industry that lie within your circle of competence. So even when you have clear checklist you must still read because reading is an integral part of your investment process.
As for the need of knowing different accounting standards related to say, stock/inventory and depreciation, I believe one can skip that part and instead know what has been the incremental investment rate for the company and its industry in the past and whether, say rising inventories are hinting to something (again a purely personal view from the angle of making analysis simple).
Agreed that all businesses are same when it comes to accounting policies, I still see a difference between, say an L&T that has maintained decent accounting standards versus Reliance Infrastructure that changes its accounting policy every quarter. So here, not the policy, but the managementās intention is what I am more worried about.
I brought in the point about unscrupulous managers because this aspect gives me a great hint whether something could be wring with the companyās accounting or not.
Iām sorry if my response was seen as a loose interpretation of your comment, but I never intended it to be that way.
Also, when I talk about annual reports analysis, I always ask investors to first understand basic accounting (as Iāve done in the Value Investing course) before jumping to financial statementsā¦so this is in line with your view t that one has to go through basics for some months before coming to read annual report.
Thus, it will be the basics that Iāll try to cover through the videosā¦just that I will use the example of real life annual reports to do so.
As for my point about āconscienceless managers and accountantsā, let me clarify (and sorry for not doing this earlier) that all managers and accountants are not conscienceless. In fact, I know a lot of them that are ethical in their practices. I was only trying to relate bad accounting with bad managers and accountants.
Sri, so Iāll clarify again that nothing in my previous comment was against what you wrote. Itās just that I have a slightly different worldview than yours (and everyone has an individual worldview), and that is what I tried to bring about in my response.
Believe meā¦itās always great to interact with you because you always lead me to think hard and straight, which I might otherwise miss sometime in my own oscillating rhythm. š
And as Sanjeev said, it is discussions like these that add tremendous value to this entire tribe of āsmart investorsā, who are heading towards becoming āsimple investorsā. Regards.
Well i agree with vishal’s point,if everything would have been efficient then there would be have no reason for research,research arises due to inefficiency.There can never be an efficient structure.Regarding Accounts,its true that it can be simple or it can be complex ed. The failure of enron,satyam,lehman was all due to inefficient and complex structure of accounting.we are here to understand this things.well for the world to exist,there needs to be the co-existence of the good and the bad.We teach our children,what is good and what is bad,so that we can bring up an efficient way of living for them.There are going to be many satyams and lehmans in the future also,but how to resist them,is the efficiency of learning. we are here to pick out the good things from the market and resist from picking the bad things.That is our endeavor.
Hi Vishal,
Excellent work. I liked your 1st introductory session on reading of annual reports. Keep up the good work.
Thanks,
Prashant
vishal
//Believe meā¦itās always great to interact with you because you always lead me to think hard and straight, which I might otherwise miss sometime in my own oscillating rhythm. //
thanks. whatever i write comes out from my experience and concern for the small investors.
when i say experience, it is around 29 years as of 2012…am not very old since it all started from college days…my two account professors sitting in the remote part of south…inspired by buffett wanted to walk through the path shown by them…at that time there was an article about buffett in dalal street journal I believe.
I have also read an wonderful article in 1978 or 1979 issue of Management Accountant, official journal of ICWAI.
am not a student of commerce, so hated their accountancy classes and for that reason, them also. It was not in the syllabus. They made me work in their personal projects of investment because of simple reason that i showed some interest in stocks and always obedient. The turning moment came when they reaped rich rewards 5 years later when i was doing my CA. They gave me a small gift in front of my parents touching my heart so much that it inspired to aim bigger things in life..
Thanks Sri! Your amazing amount of experience speaks through your ideas and discussion points. I am so proud to have you as a Safal Niveshak tribesman, contributing to our learning process. Thanks a lot for the same! Regards.
Yes Vishal, Sri has added another dimension to the comments section. Thanks a lot for tribesmen like him.
However, if you can suggest few books on accounting beside Class XI and XII books then that would be great. I agreed with Sanjeev that Interpretation of Financial Statement doesn’t throw much light on Annual Report analysis, although it explains basic accounting terminology.
I have bought Quality of Earnings, but I am yet to open the packet š
Manish, Graham’s “Interpretation of Financial Statement” is one good book…just that you may have to read it a few times to understand some definitions…but once you understand, it’s a great resource.
Another book is “Warren Buffett and the Interpretation of Financial Statements”. Then there’s the all-time great “Security Analysis”. One book to help you look into possible financial frauds is – “Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports” by Howard Schilit.
Sri, can you help us with any other suggestions I’ve missed here? Regards.
Thanks for the suggestions, Vishal!
I have heard about ‘Financial Shenanigans’ but already have a long list of books to be finished, before I lay my hands on that one. I believe another such book is ‘Creative Cash Flow Reporting’. Have you or any other member had read that one?
‘security Analysis’, another all time classic. The only thing is that its language is a bit tough for me :/ Still, plan to read that one, may be next year, for sure.
Any how, I think it’s high time I shall start trimming my waiting list of books that have been gathering dust. I will start with ‘Quality of Earnings’ and hopefully would be able to share my review with the readers soon.
Its Great! The work done by you is Very nice! There is one book on financial Accounting “Romancing the Balance sheets” by Dr. Anil Lamba. The financial terms are explained in ver simple language in that book.
Hi Sachin, yes I did glance through ‘Romancing the Balance Sheets’, but i think it still scratches the surface. If one reads some active bloggers who are out there, they do a tremendous job of dissecting a balance sheet. I would still have to reach there. Still, a long way to go…
First of all, I congratulate Vishal for his efforts to educate readers about value investing and his philosophy. Good initiation are rare to see now a days so highly appreciate your efforts. Further good to see healthy discussion going on. I repeat my opinion here. Investing is an art. There are numerous ways but ultimately which approach suits one depends on his ability to judge the situation and make decision. I completely disagree when people tomtom about stocks are best investment etc. They tell you half the story. Other half is always left unexplained and one learns when he make a hell of a loss. The point is it’s one’s ability, capacity, seeing future, sixth sense, hard work etc etc you can add anything you want, to know what price level one should enter and exit. That’a all matter. Those who can keep their nerve and take right decisions will succeed. This is an art and not all are gifted.
Thanks for your feedback and inputs Salil! I second your view that people, when they make a generalized comments like “stocks are best investments”, are missing the point.
Stocks are great investments for, as you say, one who understands the art of stock picking and thus picks up the right stocks at right prices, while keeping emotions aside. For others, the experience can be disappointing.
Dear Vishal,
Great start on video sessions about analyzing a report !!! I shall eagerly wait for the remaining classes. I am confident that it will certainly make lay investor like me ascend atleast to a level of smart investor.
Earlier, I was dependent on research reports (paid / unpaid) to buy or sell stocks. However, after becoming Safal Niveshak Tribesman, atleast I try to put in my efforts to find reasons either to buy or sell a stock. I believe, that in itself is a very big change (as lay investor) in a positive direction and I thank you for the same.
I do agree with your views that if taught in rightway learning and applying is not a difficult task.
Regards
Thanks for your feedback, Ajay!
Just to add to the above discussion, here is what Charlie Munger has to say about simplicity and annual reports – “We like to keep things simple, so the chairman (Warren Buffett) can sit around and read annual reports.” š
Vishal,
I was reading the latest AR of Piramal health care and wanted to ask a question, The dividend is paid from the net profit after taxes or are they paid and then the net profit is calculated?
Another question is if the company has more surplus cash can they pay dividend more than the net profit for the financial year?
Vikrant, the dividend is paid “from” the net profit…which means after the net profit is calculated. Yes, some companies have sometimes paid more than 100% of their profits as dividends (I think Infosys has also done it in the past when they announced a special dividend), simply because they had a lot of surplus cash that was not to be reinvested in the business.
Hi Vishal,
Thanks for such an initiative. In this season of annual reports, you have provided the heaven to novice investors like me. I promise myself to follow safal niveshak and the knowledge it imparts to become a successful investor and a wise person. I stuck on to safal niveshak through the blogs on the discussions with Sanjay bakshi. As soon as i saw sanjay bakshi’s reference, i knew i am at right place to dig in further. Thanks once again for such a wonderful initiative.
Vikas Kukreja
Thanks for the appreciation, Vikas! š
Dear Vishal
Could you please where can we find the annual reports of companies ? Usually companies upload thier annual reports in thier websites, but only for past 4-5 years. But where can we find annual reports for the past 8-10 years ?