R Balakrishnan decodes annual reports

 

Decoding annual reports and getting behind the numbers of a company is not an easy task. R Balakrishnan, who has four decades of experience in financial markets and having been among the

founding team of CRISIL (Credit Rating and Information Services), the head of research at DSP Merrill Lynch and CEO of Sahara Mutual Fund, delved into the nitty-gritties of an annual report.

 

Annual reports are generally studied from an accountant's perspective, but investors need to focus on specific areas to take their decisions. This necessitates studying annual reports from a different perspective. R Balakrishnan delineated different aspects of the annual report from an investor's perspective, highlighting the fact that though every number tells a story, every story need not be relevant. Simplifying financial statements, he explained the interrelationship between different financial statements. He deconstructed different aspects right from Director's Report, Management Discussions to different quantitative aspects.

An investor's job is incomplete unless he analyses financials of the company. Delving into the most important ratios, which need to be monitored by investors, Mr Balakrishnan pointed out that how much the shareholders do learn from the ratios can be the most critical factor. While short-listing companies, he remarked that the two most important ratios, the investors should look at are return on capital employed (RoCE) and return on equity (RoE). Highlighting the importance of RoE, he said, ''Stock prices follow RoE in the long-run. In the short run, stock prices follow anything.''

A session on annual reports is not complete without real-life examples. The second part of the seminar consisted of delving into the financials of Inox Wind and Hindustan Unilever Ltd (HUL). The Moneylife columnist took the audience through ratio calculations in a step-by-step manner.

 

Kotak Securities, one of the co-sponsors of the event, conducted a lucky draw. Three lucky attendees won vouchers for PVR.

 

R Balakrishnan was graceful enough to answer questions from an inquisitive audience, in the midst of the session. The seminar ended with Mr Balakrishnan giving his deep insights into the questions posed by the audience. He answered questions relating to issues like corporate governance, pledging of shares, and also issues relating to different sectors and red flags. Towards the end, replying to a question on debt, he remarked lightly, ''Many businessmen in India treat loans as a revenue.”