Summary A practical guide to interpreting financial statements and valuing companies

A snapshot of the summary - A practical guide to interpreting financial statements and valuing companies

• 1 Financial reporting

• On which things do investors predominantly focus on?

  1. Growth
     
  2. Composition of revenues
  3. Development of operational earnings
  4. Profit margins
  5. Net earnings
  6. Cash flow figures
  7. Dividends
• On which things do regulators predominantly focus on?

  1. Capital expenditures
  2. Other investments
• On which things do (trade) unions predominantly focus on? Why?

  1. Development of staff
     
  2. Employee expenses
  3. Earnings
  4. Dividends

  The last two suggests a possible magnitude of potential salary increases.
• Next to his/her predominant interest, every stakeholder should also be interested in what? And why?

  A company's outlook and financial health.
  
  These are the obvious key ingredients of a company's ability to deliver on any stakeholder expectation in the future.
• Why should every stakeholder understand how the owners view their investment?

  To anticipate likely board and management actions in the future, which may affect the interest of its other stakeholders other than shareholders.
• Why is it often very insightful to analyse the revenue breakdown companies provide in their annual reporting?

  To better understand the development of growth drivers and -draggers, and of the evolution of competitive pressure over time.

• 2 Shareholder return

• What does the return that a shareholder gets for being (partial) owner of a company consist of?

  • Capital gains
    
  • Dividends
  • Share buybacks 
• What are yield plays in the investment world?

  Shares that are considered to have a lower level of risk and volatility because they are usually found among larger, more established companies.
• What are growth plays in the investment world?

  Shares that will usually refrain from paying out dividends and will instead reinvest back into the company to expand.

• 2.1 Capital gains

• What is the most straightforward way in which shareholders can earn money from being shareholders in a company?

  By buying shares at a certain price, which rise over time, and hence by profiting from a share price increase.