The Hindu Business Line : Between the numbers

GDSIL or Global Data Services of India Ltd has brought out `a complete analysis' of ten companies. The book, titled `Financial Analysis of Indian Companies: Selected Case Studies' (www.crisil.com), dissects numbers drawn from published annual reports, newspaper advertisements and company Web sites.

"Students are advised to read through chairman's statement, directors' report and management discussion and analysis," advises the book. A caution, however, is that "often a directors' report may assign a company's misfortunes to extraneous factors, such as government policies and international trends," which is why "it is important to be aware of current events, including economic and political issues, to be able to make a correct judgment on the claims made in an annual report."

Chapter 1 is on Hero Honda, about which you read that the company paid a dividend of 1,000 per cent for the year ended March 31, 2005. "Over the last five years, cash flow from operations increased by more than 100 per cent," yet "average debt repayment period at current rate of accruals remained constant," notes the book. Queerly, the closing stock value per unit as on March 31, 2004 was Rs 27,106 as against `the average selling price of Rs 26,828 during 2003-04.' There appears to be an overvaluation, though not significant, says GDSIL.

At times, the numbers in published documents may not readily be helpful to a reader. In the case of Hindustan Lever, for instance, `installed capacity for personal products' is given in tonnes, while `the unit for production is numbers'. As a result, `capacity utilisation cannot be computed,' frets the book. Interestingly, capacity utilisation for soaps has been around 150 per cent, and for synthetic detergents, consistently above 200 per cent.

Significant differences may arise when comparing results across GAAPs (generally accepted accounting principles), as in the case of ICICI Bank. "In the merger of ICICI with ICICI Bank, the bank was the legal acquirer. Under Indian GAAP, the bank is the accounting acquirer. Under the US GAAP, ICICI is deemed to have acquired ICICI Bank." Therefore, the financial statements under the US GAAP and the Indian GAAP for the bank are not comparable and these differences are expected to continue in future years, states GDSIL.

"Essential tools of financial analysis are percentage calculations, ratios and indexation of numbers that reflect year-on-year changes as well as trends over a longer period," describes the intro. "CAGR or compounded annual growth rate is helpful in assessing how various parameters of a company have moved over a period of time... Absolute numbers convey very little, unless they are used for inter company comparisons of size or dominance."

A 4-year CAGR of sales stands at 37.8 per cent, compared to 42.7 per cent for debtors, in Infosys. The ascent of receivables is seen also in `days of revenues outstanding', at 67 at the end of March 2005, as against 48 in the earlier year...

Educative material.

Company meetings

Randy Cepuch, `a financial writer with 25 years of experience helping millions of mutual fund shareholders in the US, Canada, Mexico, Europe, Asia, and Australia to understand their investments,' has written a book on company meetings: `A Weekend with Warren Buffett and other shareholder meeting adventures' (www.landmarkonthenet.com).

Buffett fans call Berkshire Hathaway's annual shareholder meetings `an MBA in a day'. Do you know why? "Because the legendary all-day Q&A sessions feature two extremely bright men - Buffett and Charlie Munger - holding forth not just on details about the company, but about business and the world in general," says the author. "It's like sitting on the porch with two kindly grandfathers, both eager to help you succeed beyond your wildest dreams."

Thus, to a questioner who asks, `How do you become a successful investor?' Buffett replies: "Have a philosophy and don't be greedy. Insulate yourself from popular opinion." To another, who wants a definition of success, the answer is: "If all you do is achieve wealth by passively holding bits of paper, you will have a failed life. When you get to be my age, you will be successful if the people you hope would love you do love you. It's something you can't buy... "

Starbucks meetings come as a stark contrast. Howard Schultz, the founder-chairman, has little tolerance for shareholder proposals, narrates Cepuch. "He announces that each presenter will be limited to five minutes, introduces the presenters with undisguised disdain, then stares at them, fidgeting and licking his lips while they make their cases."

A book that takes you also to meetings of Google, Hershey, Playboy, DuPont, eBay and Dow Jones, among others.

Enlightening ride.

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