Financial Statement Analysis



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Rishi Kashyap
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Financial Statement Analysis


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While there are many websites and social network groups where financial report analysis and financial reports are compared, it is always advisable to verify with the actual financial data from the reports provided by the company.

Going through the Financial reports of the company will tell you much more about the company than what is available through the Brokerage house reports or social media groups ! As explained in What are shares in a company, trust you do not want to partner to a company just like that !

This financial report analysis chapter is certainly not exhaustive and going in details will be beyond the scope of this Share Market tutorial, but I hope it may give a kick-start to analyzing the company better and help in finding undervalued stocks !

Each financial report consists of mainly three sections

  1. Profit and loss statement
  2. Cash flow statement and
  3. Balance sheet statement

Before I detail the sections, let me assure you that a financial statement is not as difficult as you may be thinking. MBA or a PhD is not required to understand the Financial reports or how to value stocks ! A basic English Knowledge is enough to make sense about the company from its Financial reports.
As I always say, if I can do it, for sure, you can !
Financial Statement Analysis
In fact, if you are doing any Financial statement analysis and you are finding it difficult to understand the companies report, please do not blame yourself ! May be the Company Auditor and the Promoters have deliberately made the financial statements too difficult for the investor to understand.

Please do financial statement analysis from an original financial statement reports from the company

Do not be in a hurry to find the best stocks to buy today, being patient and understanding the Financial Statements will, for sure, help you in the long run. Some general thumb rules I follow before investing are
Thumb Rules for Stock Investment
  1. Default mode is DO NOT INVEST
  2. Verify Financial statement source of Information. Best is to do financial statement analysis personally.
  3. If you do not understand the financial statement, safely switch to default mode, DO NOT INVEST. Period !
  4. Check Financial ratios for fundamental analysis, if not sure, switch to default mode, DO NOT INVEST.

VALUE INVESTING STOCK INVESTMENT VALUING STOCKS STOCK MARKET COURSE FUNDAMENTAL ANALYSIS

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Rishi Kashyap
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X Financial statement source
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A close friend of mine (lets call him GK) manages a Portfolio Management Services (PMS) for many. I really respect his knowledge and his expertise in the Stock Market. I am continuously learning and keep making mistakes. Whenever in doubt, I discuss investment results with him.

On 18-Jan-2022, one such discussion made me realize that many investors are relying too much on their favourite website for Financial statements.
Financial Statement analysis source

Shares name mentioned in case studies are for educational purpose only and not to be taken as recommendations. Case study stocks may have been good investment at that moment of time which may have changed at the time of reading.

Please learn share market basics & how to value stocks before investing or consult a good Investment advisor.
Rishi kashyap is not a certified Financial advisor, please contact your Investment advisor if you do not know investing

Below is a transcript with GK which emphasises verifying the source of records

GK : At what time did you come to know that the company is not performing well??

ME : Yaar last 3 quarters were below my expectation .... I may enter again below 600 but for the time being didn't want my profit to erode ! Got my more than 20% return and will monitor it till saying last BYE in next 3 quarter !
In this share I think I just went lucky it went more than 1000, its should not have !

GK : June was marred by Covid 2nd wave and September (seasonally weak rainy) was inline .. last March was a bumper quarter..
Today you sold even without seeing the results .. sold by godly intuition  ..... The poor result actually came after you sold.. so you just sold on price and not poor performance (as claimed below your expectation) .... That's why I was curious on this specific query.

ME : Perhaps you are right. Only time will tell ..... In this Bull Run everyone is lucky ....
I am not saying THE ANUP is a bad company all I am saying its price sure will come down and I don't trade (short sell) so I got out as per my calculations.  But sure will monitor it closely. I rarely sell anything these days ....
I think you are monitoring 3rd party websites for results ...
The results came much earlier on BSE and NSE .... Track them there .


The sad part for me is I HAD TO SELL ..... I am still learning will do my thesis later where I went wrong with this share, I had huge expectations from this share and was moderately invested in it.

While their is nothing wrong in using 3rd party websites which facilitate better information filtering but one needs to understand how the Stock Market data flows.
  1. Listed companies are required to submit the board meetings and Financial results to the stock market exchange like NSE and BSE.
  2. These exchanges in turn display the results under Corporate announcements section of the share.
  3. These exchanges also sell this Corporate announcements data to Data vendors or 3rd party websites (called SUBSCRIBERS). Data is sold as Real time data (very expensive) OR End of day (EOD) data (expensive).
  4. Even in real time data there is a small delay in updating the SUBSCRIBERS or 3rd party websites. EOD data is broadcasted only after closing of market for that day, mostly after 1600 Indian Standard Time. Most 3rd party website including JAHAJEE Stock market report are EOD subscribers .
  5. 3rd party websites, in turn, may delay in displaying the data on their website and updating their screeners due to technical reasons like Page Cache, DB updates !
  6. Share market always responds quickly on the declared results.

CASE STUDY

Share of companyBUYINGSOLDRETURNON WRITING
The Anup Engineering LimitedPrice : 690
Date : 25-May-2021
Price : 1050
Date : 18-Jan-2022
52 %
CAGR return : 90 %
Price : 616
Date : 14-Jun-2022

On 18-Jan-2022 ANUP declared its Results by afternoon and following movement of stock happened

NSE open price : 1195
NSE Results : 18-Jan-2022 12:39:55
NSE low :  982
NSE Close : 991.3

BSE open price : 1190.5
BSE Results : 18-Jan-2022 12:39:55
BSE low :  983.7
BSE Close : 990.7

Key Points of this section
  1. Results are declared first on either companies website or NSE and BSE and later on 3rd party websites
  2. Results are available as PDF on Exchange website under CORPORATE ANNOUNCEMENTS
  3. Stock prices may rise or fall sharply after declaring result
  4. Results dates are important data to monitor in your Stock Portfolio irrespective whether you are doing Fundamental analysis or technical analysis
  5. For Long term Investors, 1 quarter results should not matter. I generally take from 3 to 8 quarter results to take a decision ! You may have a different count and that is OK !

VALUE INVESTING FUNDAMENTAL ANALYSIS VALUING STOCKS STOCK INVESTMENT STOCK MARKET COURSE

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Rishi Kashyap
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X Standalone vs Consolidated financial reports
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Many listed companies declare 2 different results in the same Financial statement viz Standalone and Consolidated financial reports, which may seems confusing to beginner Investors. In this section we will see the difference between Standalone and Consolidated reports and why does it matter to an Investor !

Shares name mentioned in case studies are for educational purpose only and not to be taken as recommendations. Case study stocks may have been good investment at that moment of time which may have changed at the time of reading.

Please learn share market basics & how to value stocks before investing or consult a good Investment advisor.
Rishi kashyap is not a certified Financial advisor, please contact your Investment advisor if you do not know investing

Standalone vs Consolidated financial statement and which one to use ?
For this section  I request you to download March 2022 financial statement of SARDA ENERGY MINERALS
SARDA ENERGY REPORT   2022 March (NSE)SARDA ENERGY REPORT   2022 March (BSE)
The 16 pages of Mar 2022 Financial statement of SARDA ENERGY has
  1. Page 1 contains outcome of Board meeting and that company "Approved the audited standalone and consolidated results (financial and segment wise) for the financial year ended 31st March 2022" and "confirmed the Interim Dividend of Rs. 7.50 per share to be the final dividend for the year 2021-22"
  2. Page 2-5 contains the Standalone reports
  3. Page 6-9 contains the Consolidated reports
  4. Page 7-13 contains the CA statements for the audited report
  5. Page 13 list some different companies under 3 section : Subsidiaries, Associates and Joint ventures
  6. Page 16 contains the consolidated result statement for companies listed on Page 13

Page 13 shows as below Standalone vs Consolidated financial statement
It seems like SARDA ENERGY has stakes or owns other companies too, which affects its results ! These companies are categorized basis the ownership stakes held in a company
CategoryHolding stake (Shares)
Joint Venture CompanyControl some assets and operations
Associate Company20-50%
Subsidiary companyMore than 50%
Wholly-owned subsidiary company100%

Standalone financial statements show the financial report of the company alone that is in this case "SARDA ENERGY AND MINERALS LIMITED" and no other Legal Entities.
Consolidated financial statements ,however, shows the financial report of the company itself along with its 11 subsidiary companies, 1 associate of subsidiary companies and 2 joint ventures as listed on Page 13. Therefore, here the report details financial position of a group of companies all taken together.

Which report to use for Financial Statement Analysis ?
Quite obviously, if the subsidiary business affects the results of the company concerned then as an Investor you should always consider Consolidated Financial statements.

It seems like SARDA ENERGY FINANCIAL RESULTS are affected by its subsidiaries performance as below :
Financial ResultStandaloneConsolidated
Quarter (Mar 2022)213.01 Cr206.26 Cr
Annual (2021-2022)658.82 Cr806.76 Cr

Detailing how are these Consolidated financial reports prepared is beyond the scope of this article, however do remember that there are well laid Indian Accounting Standards for consolidation of assets and liabilities for each JV, associate and subsidiary.  Also, SEBI (Financial Intermediary of stock market) has issued specific circulars on the format and requirements of Consolidated Financial reports by listed companies in Indian Stock Exchange like NSE and BSE.

Once we are clear between Standalone and Consolidated financial report, lets move to financial results section of the Statement.

FUNDAMENTAL ANALYSIS VALUE INVESTING VALUING STOCKS STOCK MARKET COURSE STOCK INVESTMENT

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