Disclaimer

Do your own due diligence first before investing. The writer will not be responsible for any capital loss as a result of reading this blog.

Monday, February 25, 2008

Chapter 6: Nature & Sources of the Analyst's Information

All the information regarding this chapter is based on US rules and regulations by the US Securities and Exchange Commission (SEC). Hence, it is a bit challenging for me to interpret the information into Singapore's context. However, I shall give the information for the part on US and then Singapore as accurate as possible with my current knowledge. Older and more experienced investors please correct me for any mistakes I made. Thank you!

Most of the corporate data used by the security analyst will have come originally from 2 parallel sources. The first is material filled with a regulatory body- most often the SEC. For Singapore, its the Singapore Stock Exchange (SGX) and the Monetary Authority of Singapore (MAS). The second is information sent by the company to the stockholders or the press. Nearly all this information is reproduced or condensed by the financial services, as it becomes available. For many analytical purposes it is sufficient to take the material, at second hand, from the various manuals, supplements or "daily sheets". But for a full-scale analysis the practitioner will generally find it advisable to consult the original sources, to make sure that nothing of importance is overlooked.

3 Types of Material available for analysis

1) The Basic Registration Statement (Prospectus): This statement provides a detailed description of the company's business and properties and will often serve as a starting point for detailed analysis. When companies are applying for Initial Public Offerings (IPOs) they will give out a prospectus. Can be found in the companies' or SGX website.

2) The Annual Report: It is here that the dualism between voluntary and required data is most manifest. Listed securities must file with the SEC a form (10-K for most companies) which contains a balance sheet, income account and cash flow statement in prescribed detail, and which also adds material that may be needed to bring the registration statement up to date. For Singapore listed securities, go to SGX website and look in announcements for financial statements.

3) Interim Figures: Quarterly net income figures. It was originally the accepted view that companies with a pronounced seasonal bias in their results should not publish interim figures, on the ground that these could be misleading. One method of overcoming the objection to seasonally unstable interim figures is by publication of successive 12 month totals at quarterly intervals.

Some important information still not generally available

1. Explanation of important differences between the income reported and that on which income tax was computed.

2. Where last-in, first-out inventory ("LIFO") basis is used, the equivalent value on a first-in, first-out ("FIFO") basis.

3. The present insured or appraised value of the fixed assets.

The analyst would like to have the following material if he can get it:

a) Orders booked and unfilled orders
b) Productive capacity where relevant
c) Production in units where relevant
d) Division of products by principal classes or departments, in dollar amounts or in percentage of total.
e) Data on concentration of business with few customers, if it exists, and any significant dependence on exports.
f) Description of property owned, including types of buildings and combined floor area.

Supplementary Information

The security analyst uses a vast amount of economic statistics, which relate either to business as a whole or to a particular industry. Most of this material is found in the Department of Commerce. For Singapore it is the Ministry of Trade and Industry (MIT).

Trade Journals: Detailed information of the current and prospective state of the industry. eg. its history and problems or in some cases unofficial data relating to individual concerns.

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