How to get information on financial reports

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Step by step, we’ll take you through what you need to know to make sense of a business’s bottom line – and the numbers that inform them.

For those of us who aren’t calculators, a company’s financial reports can leave us in awe.

The deluge of facts and figures is far from suitable for beginners and can scare away even the bravest of retail investors.

But what if I told you that a company’s finances have more bark than bite?

In this article:

They may seem obscure to the untrained eye, but balance sheets and quarterly reports can reveal key information about your current or potential investments.

Step by step, we’ll take you through what you need to know to make sense of a business’s bottom line – and the numbers that inform them.

Getting to Know Finances – Five Tips from the CPA

Before getting to the heart of the matter, it’s important to familiarize yourself with the jargon that surrounds financial reporting.

Professional accounting body CPA Australia has implemented five key steps to help you familiarize yourself with annual reports.

First, the association says doing homework is key.

“The importance of preparation should not be underestimated when analyzing the financial statements of a listed company,” CPA explained in a 2019 article.

“Become familiar with the environment in which the company operates today and its future direction, for example, obtain information on local, national or global macro and microeconomic conditions and the risk profile of the activities of the company, is a good and necessary start.

From there, the CPA says you should consult the auditor’s report for any amended opinion or other communication – it could contain hidden gems.

Then we move on to the financial statements.

“Look at the statement of net income and other comprehensive income and the statement of financial position to assess the size of the business and its profitability,” said the CPA.

Note that sometimes what you pay attention to differs between listed companies and sectors.

“The level of attention that stakeholders give to different primary financial statements will depend on the nature of the business,” the accounting body said.

“For example, in industries where the company’s asset base is very large (such as banking, real estate, fund management, etc.), the statement of financial position may be given greater emphasis. Warning.

“However, in a business where income, profits, or dividend payments are important to stakeholders, the statement of operations and other comprehensive income may receive more attention.

In Steps Four and Five, the CPA recommends that stakeholders consult the Declaration Notes for a complete picture.

Now that you’re fully immersed, let’s take a look at the who, what, and when financial reports.

How do companies report their financial statements?

State-owned enterprises report on their operations over three key periods: quarterly, semi-annually and annually. These are quarterly, interim and annual reports.

ASX requires companies to be transparent about this financial data, and it is disclosed as market announcements during reporting cycles.

Some companies follow different cycles from the traditional financial calendar. For example, Westpac’s current fiscal year ends on September 30, 2022, when most companies complete the first quarter of their new reporting cycle.

You can usually find out when a company is due to publish its financial statements on its website or by looking at previous reporting dates.

What do companies have to report?

ASX-listed companies know which numbers to disclose through three reporting templates, called appendices.

These correspond to the three reporting cycles – there is the 4C treasury report (or the 5B for oil and gas explorers) for quarterly, the 4D for intermediaries and the 4E for annual reports.

If a mining stock is a producer, it can issue a quarterly report without the 4C, and if a company is involved in mineral exploration or oil and gas exploration, it does not have to produce a 4D or 4E.

For your reference, these appendices give you some of the key information about the financial performance of the company.

The 4Ds and 4Es are pretty short summaries, so a company will also provide a more detailed financial breakdown in their report documents – but you’ll have to scroll through all the shiny items to find it.

4C – make sense of cash flow

The 4C reports – published after each quarter – record the evolution of the company’s cash flow over a three-month period.

They follow three key areas:

  • Operating cash flow (section 1) – any money earned or spent in the normal course of business – think cash inflows, administrative expenses, product development, etc. ;
  • Investing cash flow (section 2) – money related to the acquisition or disposal of assets – such as the purchase of equipment or the sale of a parallel entity; and
  • Financing cash flow (section 3) – any change in the company’s capital structure – think of the proceeds of a capital increase or any money spent to repay loans.

These three sections measure how much money goes into or out of the business and, added to or subtracted from the business cash flow at the start of the quarter, gives you the capital remaining in the piggy bank at the end of the quarter.

The cash and cash equivalents figure (marked 4.6) is essential. It gives you an idea of ​​the financial leeway the company has to achieve its goals in the coming quarters.

If it’s not a lot, it could be a sign that the company is considering a capital raise or some sort of debt financing – or expects cash flow to improve over the next few quarters depending on the seasonality or new developments.

This is why section 8 of the 4Cs is a good litmus test.

By dividing the company’s total available funding – i.e. cash and cash equivalents (4.6) plus unused funding facilities (7.5) – by the total of its relevant expenses – the net cash generated / used in operating activities (1.9) plus all payments for exploration and evaluation classified as investing activities (2.1 (d)) – you get the estimated quarters of funding available.

So, if a business’s operational cash flow is in the red, that is, it cannot generate enough money from cash inflows and other income to cover expenses. operating, that gives you an idea of ​​how far it can go at the same pace to spend.

If less than two-quarters of the estimated funding remains, the business must answer three questions:

  • Is she waiting to see this operating cash flow rate be maintained?
  • Will he take steps to raise additional capital (such as a raise)?
  • Does he hope to be able to continue his operations?

Interim and annual reports

By understanding a cash flow report, you are able to navigate one of the key elements of an interim or annual financial statement.

These 6 and 12 month accounts – which are generally included after the signature of the auditor and the remuneration report in an interim or annual document – will contain the following four modules:

  • A consolidated income statement / income statement, showing whether the business has banked beyond spending or fallen into the red and measuring any changes in business income during the period;
  • A balance sheet / statement of financial position, tracing the assets, liabilities and equity of the business;
  • A statement on changes in equity, which measures how things have changed from the previous year; and
  • A statement of cash flows, monitoring any money received from operating, investing or financing activities.

CPA Australia should work regularly with financial statements and believe they are essential for investors.

“The financial report provides people interested in a business – such as shareholders, lenders, analysts, employees, and other stakeholders – with information about the financial performance and condition of the business,” explained the ACP in a 2019 article.

“It is a means by which the directors of the company advise the shareholders on the performance of the company during the year.

“The financial report also provides information to shareholders on how the directors have discharged their responsibilities. “

By familiarizing yourself with financial statements and increasing your knowledge, you will be able to be on the same page as your investments.

It can be confusing to begin with, but hiding is the biggest challenge – and great rewards await those in the know.

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