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Annual Reports - How to read it?

I received 3 hard copies of annual reports recently. What insights can you gain from the annual reports?

Let's use a simple annual report on Riverstone as example. The link to the soft copy is here and can be found on the SGX website.

Company's Vision

It is important to know what the Company's vision is and whether the vision has changed from prior year. In this instance, the vision is as follows:


Profitability Trend



You can also see at one glance the profitability trend, financial ratios and the dividends declared. In this instance the revenue is growing nicely and the company has zero debt but the net profit is not growing as quickly, probably due to decline in margin.

Milestones

You can also read about the various milestone reached by the Company and in this instance, the Company commissioned 6 production lines in Dec 2012 and the production capacity has increased to 3.1 billion gloves (from 2.5 billion). This will spell increased profits if the company continues to be in a position to sell all its products.

Letter to shareholders

I would regard this as one of the more important piece of information to read. It tells you about the CEO's vision for the company and its outlook.


He will give you a quick download on the past year as well as what he believes the key challenges and the outlook of the company will be.


The key message here: despite the intense competition, Riverstone will be able to sustain its financial performance for 2013 due to increased capacity and rising demand for its gloves.

Financial Statements

Last but not least, read the financial statements and the notes. A lot of information can be found in the notes to the accounts but this will also be the time where most will fall asleep. If you have to sleep, read at least one item - the cashflow statement. It will give you a good hint if the company is in good financial health. A good company will have a high positive cashflow from operations. In this instance, Riverstone generated RM63m from its operations in 2012!
Valuation Matrix


The valuation as of today still looks reasonable at 10.4x PE and yield of 4.9%. 

Happy investing.

2 comments:

  1. With the ageing population needs in Singapore and the bird flu, this company definitely got potential.

    I like reading your articles. Would you like a link exchange? My blog is SG Web Reviews (www.sgwebreviews.blogspot.sg).

    Please email me if you are interested. My email is sgwealthbuilder@gmail.com

    Thank you.

    ReplyDelete
  2. Hi this may be quite an amateur question but how do you determine the company has a high positive cashflow??

    ReplyDelete