Forum Archive Index - October 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi smasha,
 
>
> Snoopy mate - how do you manage to 
> a) glean all this information, 
>

Short answer:  

1/  Go to the company website and read the accounts information in 
the annual report.  If you are a shareholder it is easier.  The annual 
report is sent to you :-).
2/  Check the latest news releases from the company.   I find Ben 
Dutton's site 'Stocknessmonster' good for that, and of course 
sharechat itself for any recent news developments on the company.

and in this particular case /3/

3/ At the AGM keep your ears peeled for information that will affect the 
next years profit (like information on revenues and expenses).  It is 
quite a simple relationship for determining profit:

"Profit is the difference between Revenues and Expenses."

It follows from this statement that if expenses go up and revenue 
remains the same then profit will go down.  Based on this you can start 
to ask 'What if?' questions.

What if the company spends $Xm on some project?   How will that 
affect the profit?    You can try to bring in 'high powered mathematical 
tools' to help answer this question if you like, but usually simple 
arithmetic is perfectly satisfactory.

>
> and
> b) know how to "run the rule" over it......?
>

Ah, this is where it gets more complicated.   There is no 'one best way' 
to run the rule over information.

My own preference is to keep any analysis of the numbers relatively 
simple and always start with as good dose of common sense.

A specific example:  The debt position of LPC.   There are all sorts of 
buzz word accounting phrases around: 'good debt/equity ratio' 'have a 
strong balance sheet' etc. etc.     I prefer a much simpler appraoch 
than any of those concepts.

I prefer to answer the question:

"Do they have enough money coming in to pay the bills?"

More specifically I like to phrase the question in home mortgage terms.

If you stick all your income towards paying off your debts (mortgage)  
how long will it take you?  The method for calculating what you want 
then becomes more obvious.

1/  Figure out how much debt he company has.  This is the long term 
'debt on the house' (long term liabilities), not the 'weekly grocery bill' 
(current liabilities).    The current liabilities are usually taken care of by 
the currrent assests.  

Take the LT debt, divide it my your annual income, and then you have 
a figure (in years) needed to pay off the debt.  I think that is a figure 
that most people can relate to.   Which is why I use it!

You can find out the debt from the 'statement of financial position' in 
the annual report.   The net profit is in the 'statement of financial 
performance'.  Divide the latter into the former and you have your 
answer.   

Usually all this information is presented in a form that includes 
comparative figures for the previous year.  You can cast your eye 
across the year to year comparison and see if any of the numbers are 
significantly out of whack.  The figure that stood out for me was the 
'short term borrowings' which had more than tripled during the year 
while the business remained substantially the same.  This alerted me 
to the fact that some of these 'short term borrowings' may not have 
been 'short term' after all.   So I made an adjustment to reflect that.


> 
>I'd be extremely interested to hear how you do it if you feel like
>sharing.....;-)
> 

Has that helped answer your question?  Felll free to probe further if 
you would like anything else explained.

SNOOPY



--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."




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