A real chance that shareholders can understand their companies is by studying the annual reports.
What should I look for in company reports?
Main Board companies have to publish annual reports within four months of their financial year end. Annual reports of GEM companies are published within three months of the financial year end. Annual reports must be sent to shareholders not less than 21 days before the annual general meeting (AGM).
- Annual reports contain a great deal of information, such as an outline of the company's activities during the year, an overview of the business climate, strategies for the future, and so on.
- The key financial figures are contained in the profit and loss account, balance sheet and consolidated cash flow statement. These financial statements tell us about the income and sales, turnover, costs and performance of different areas of the company's business.
- You need to read the auditor's report. Qualified accounts can be the first sign of trouble.
- Up to two financial years after the end of the financial year when the company was listed, GEM companies' annual and interim reports must include a comparison of actual business progress with the business objectives in the listing document.
If you want more up-to-date information, you can read companies' interim reports and financial statements. Interim reports of Main Board companies should be published within three months of the end of each financial period. For GEM companies, their interim and quarterly reports must be available within 45 days after the end of each relevant financial period.
What are the possible signs of trouble?
Some basic indications that a company is not being run to the benefit of its shareholder or is running into cash problems may include:
- High bank interest expenses
- Large bad debts
- Substantial legal actions
- Pledges of large slices of assets
- Patent disputes
- Unreasonable business reliance on related parties
- Increase in trade debts to turnover ratio
- Increase in amounts due from related companies
- Frequent placements of shares involving a significant portion of the capital
- Substantial changes in shareholdings
- Exceptional lengthy depreciation policy for fixed assets or intangible assets
- Over-reliance on one customer or supplier
- Many purchases or sales of assets involving related parties