Select the right stock

The financial year has come to an end and most of the companies have published their accounts. Very soon they will have their annual general meeting and with that they would also announce dividends. In their published accounts in addition to the performance for the last year, they also give a guidance of how they expect the coming year to be.

The published accounts are the best data anyone could ever get of a traded stock. The published accounts in addition to talking about the organization also talk about the sector they are in. When I mentioned the management gives guidance of how they expect the year to be, they base it on some knowledge viz. orders in hand, orders in pipeline and expected projects based on sector forecast.

It s not necessary that the guidance would be right, but it gives you an idea of how the company is planning for the coming year. Most of us look at how the company fared by looking at the profit made during the year. In addition to that we should also have a look at the cashflow statement.

The cashflow statement will give you an idea if the profit is actually getting converted to cash or the receivables is only raising. The published accounts are usually audited, so it would make good sense to read the notes to the accounts. Almost every audited statement has a qualification, which should be looked at as red flags raised by the auditors.

So next time you decide to invest, buy or sell a stock, read the published accounts.