The Hindu Business Line : Starting point for company research

Maximum analysis in a succinct manner is what `Ready Reckoner of Leading Listed Companies' from Global Data Services of India Ltd offers once again in the latest edition. "The book is targeted at investors, who can look at the numbers at leisure, away from computer screens," invites Madhu Dubhashi, GDSIL's CEO, in her foreword.

Designed as `a starting point for those who wish to research' any of the `225 actively traded companies,' each chapter begins with a financial snapshot, where the first data is operating income.

"Profit as a percentage of operating income is an indicator of the movement in margins over the years. Operating PBT (profit before tax) as a percentage of PBT gives a good indication of the level of contribution by the core activities of a company to its profitability and, thereby, its stability," explains the intro.

Take the case of Essar Steel. OPBT/PBT stood at 336 per cent in 2004, and the number fell to 73 per cent by 2006. In Jet Airways, there are wide fluctuations of this metric: 55 per cent in 2004, 86 per cent in 2005, and 39 per cent in 2006. Hexaware Technologies has seen the ratio ascend from 37 per cent in 2003 to 88 per cent in 2005.

"Indexation of cost and profit figures over the 3-year period gives a bird's eye view of trends," and is a useful component in the company analyses that GDSIL presents. In Hindustan Zinc, for example, operating income has more than doubled over the period 2004-2006, while employee cost has increased only 125 per cent.

In NDTV, employee costs rose 237 per cent, and operating income, 310 per cent. Ranbaxy saw the opposite: employee cost rose 121 per cent, even as operating income fell to 95 per cent, between 2003 and 2005.

Presentation for each company has neat tables stacked up; these talk about cost analysis, key ratios, cash flow study, debt coverage, asset structure, share capital and reserves, and shareholding pattern.

Of immense interest to CAs would be `accounting alerts'.

Such as: Pidilite reported Rs 2 crore prior year tax provision as `below the line adjustment'; Pantaloon wrote off Rs 12 crore relating to brands against general reserve; and ONGC reported Rs 49 crore reimbursement of capital cost as miscellaneous receipt.

Recommended reference.

Banana MNC

One company set `the precedent for the institutionalised greed of today's multinational companies', writes Peter Chapman in `Jungle Capitalists' (www.landmarkonthenet.com).

He narrates the tale of how United Fruit Company began its banana business, in the jungles of Costa Rica, and then went on to build an empire! So much so, "the small states of Central America to the south of the US had come to be known as the `banana republics': Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama."

The company was more powerful than many nation states. The `corporate nasty' could change governments when it didn't like them, "like the one in Guatemala in 1954 that had wanted to donate some of United Fruit's unused land to landless peasants.

In 1961, United Fruit ships sailed to the Bay of Pigs in Cuba in an effort to overthrow Fidel Castro. As far back as 1928 the company was implicated in the massacre of hundreds of striking workers in Colombia... "

The company, `the first of the modern multinationals', set the `template for capitalism,' observes Chapman. There were other older companies than United Fruit but they had been `stay-at-home types'. For example, "the US's nineteenth-century `robber barons' in oil, railways, steel and banking made their profits without straying far beyond national borders."

Starting off with `a few bananas grown at the side of a railway line,' United Fruit set up "a network of far-flung plantations and company towns that acted as an experimental laboratory for capitalism, unhindered, unwatched and forging ahead into the great unknown... ."

Today's world of the multinational looks remarkably like the old one of United Fruit, says the author.

"Supporters of the big modern company say that in order to prosper it must be leaner and more streamlined. It must have its taxes cut and troublesome laws that hold it back removed. How else, they ask, can it compete with the new thrusting forces, China and India?"

United Fruit made alliances when and where it could survive. "It sought out malleable elements: politicians with whom it could cut a deal and presidents-in-exile awaiting their call to sail back to power... "

You can find the history of United Fruit "in the vaults of the Harvard Business School in Cambridge, Massachusetts," guides Chapman.

Frightening read.

http://BookPeek.blogspot.com