Another Learning Experience This Week – Financial Statement Analysis

I started the week with another Skillsfuture related course over 2 full days. It was organized by the university club (NUSS) which we are a member of. It was highly subsidized and cost only $60 for those above 40 years of age. The name of the course was “Reading, Understanding and Analyzing Financial Statements for SENIORS” 🙂

While I have had a number of similar courses in my career, with one on financial modelling during my Fullerton days, I always felt that there were gaps in my knowledge. Most of what I picked up during work was on a piecemeal basis. This area has also advanced over time and it is good to have a refresher training to update myself on the latest practices.

It was a full class of 20 participants from various industries. Most were recent retirees wanting to learn new skills. There was a medical doctor, a lady doing her PhD, even a Fintech founder! There was also an HR person that asked a lot of questions. A young man who just managed to finish junior college managed to sneak into this course for seniors…

The trainer was a very experienced accountant who sits on the board of a number of companies as a director of the board. He speaks from a position of authority, having been a market practitioner for a number of years. With such a boring topic, he managed to make the 2 days very lively with multiple real-life examples. He basically deconstructed the subject and provided the class with enough simplicity, as most of us did not have an accountancy background.

We went through the fundamentals of financial statement analysis on day 1 and then dive into annual reports review the following day. He was on the board of directors for a number of REITs listed in SGX and shared about his experiences over the years. I discovered through his LinkedIn profile that he was 2 years my senior in high school.

Overall, a very enlightening short course which zeroed into a few main themes. Firstly, companies always want to look good in the financial reports, hence one needs to dig deeper to find out more. It helps to keep past annual reports to cross-check against what was said/promised previously by the senior management team. It is also important to review the Auditor’s report for signs of disagreements.

Secondly, cashflow is king. The Income and Balance Sheet statements come with a lot of assumptions. One, therefore, has to take them with a pinch of salt. On the other hand, the cash flow statement is factual and it determines the health of the company, whether it has liquidity issues and how it compares to the net revenue being declared. If the cash flow is much lower than the net revenue, then it is a big red flag.

Thirdly, he encouraged all of us to attend AGMs. He believes that it is the most important aspect of kicking the tyres of a company. By preparing for the meeting and listening from the horses’ mouths, an investor should be able to better evaluate a company.

The trainer seems to be a very sceptical accountant, having known first hand all the tricks that a firm can play, even though there are more rules to follow now when preparing an annual financial report. Everyone, myself included, should have a structured process to analyze any investments before putting our money into it. This refresher training is a timely reminder to myself as an investor to not be complacent and to treat each investment with a thorough and careful eye for financial details.