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An Introduction To Financial Statements

March 16, 2014 1 Comment

Financial statements are among the most important sections of a company’s annual report. For a novice investor, reading and understanding a company’s financial statements is quite intimidating at first sight. However, to study and make good investing decisions, it is necessary to understand them.

Profit & Loss account: The profit and loss account (P&L) shows a company’s performance over a specific time frame, usually a financial year or a period of 12 months. In India, most companies follow a April to March financial year . The P&L account is also known as the income statement. It presents information relating to a company’s revenues, manufacturing costs, sales and general expenses, interest and depreciation charges, tax costs, other income, net profits, and dividends.

For a typical P&L statement refer to the image below:

Your Company’s Annual Report

March 16, 2014 1 Comment

The annual report is probably the most viewed company publication. It is the most comprehensive means of communication between a company and its shareholders. It is a report that each company must provide to each of its shareholders at the end of the financial year.

As a shareholder ie part owner of a company, you need to know its performance over the past financial year and the management’s view on the same. You also need to know what are the company’s future plans and strategies and what does the management intends to do to attain targets.And your company’s annual report is your means to do so.

Following are the Key Constituents of Your Company’s Annual Report

Director’s report: The director’s report comprises the events that take place in the reporting period. This includes a summary of financials, analysis of operational performance, details of new ventures and business, performance of subsidiaries, details of change in share capital, and details of dividends. In short, you the shareholder can get a gist of the fiscal year from this section.

Management discussion and analysis (MD&A): More often than not, the MD&A starts off with the management giving its view on the economy. It is then followed by a perspective on the sector in which the company is present. Any major changes like inflation, government policies, competition, tax structures, amongst others are highlighted and discussed in this report. It also includes the business strategy the management intends to follow. Details regarding different segments are provided in this section. The company also gives a brief SWOT (strength, weakness, opportunity, and threat) analysis and business outlook for the coming fiscal. Read more of this post

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The Sensex And The General Elections

March 14, 2014 Leave a comment

Much has been made of the current rally in the SENSEX,which is generally explained as anticipation of a Modi win.However,compared to the earlier elections in 1999, 2004 and 2009,the rally in 2014 has been much less spectacular,as you can see by following the black line.

Also more volatile markets were seen in both 1999 and 2004- the green and blue lines.

Interestingly,speculators start reacting more sharply in the last couple of weeks before counting gets underway.In 2004.when the markets were seen as anticipating a BJP win, like today,it had already began trending down in the days leading to the vote count.

Predicting the outcome of the elections is itself less than an exact science.So too is predicting the stock market movements.So leave such predictions to the insiders if you wish to safeguard your capital.Or become an insider before you speculate,if you are inclined that way.