Upload
national-press-foundation
View
215
Download
0
Embed Size (px)
Citation preview
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
1/25
How to Read Company
Financial ReportsNational Press Foundation
Paul Miller FellowsSeptember 2013
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
2/25
Overview
Understand SEC 10-Ks, 10-Qs, 8-Ks, S4s, 13D
Decipher CEO pay packages by looking at proxystatements or Form 990s.
Learn from SEC filings about company strategies,markets, competition risks and legal liabilities.
Feed ratios, KPIs, analyst comment into coverage;spot and enterprise.
Awareness of the political economy aroundfinancial reporting.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
3/25
Public vs. Private
Public companies issue stock toinvestors, traded on public
exchanges Private companies do not (some
issue public bonds, or limited stock.)
Non-Profit Orgs file IRS Form 990, apublic financial statement
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
4/25
Balance Sheet
Assets = Liabilities + Equity
Equity = Assets - Liabilities
The T balances
Maximizing shareholder equity
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
5/25
Income Statement
Revenues Expenses = Income
Income = Revenue Expenses
Income = Profit (Loss)
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
6/25
Accounting
GAAP - Generally Accepted Accounting
Principles
Private Sector Standard Setting Bodies
authorized by the SEC
FASB Financial Accounting Standards Board,
Norwalk, Conn. (US GAAP)
IASB International Accounting Standards
Board, London, UK. (IFRS, 120 countries)
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
7/25
Accrual vs. Cash
Debits and Credits
Advance recognition of revenue to
match economic activity Revenue does not equal cash
Sales on credit
What are revenue recognitionrules?
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
8/25
Cash Flow Statement
Accrual method means income statement,revenue, sales and expense dont equal cashflow
Cash flow statement provides a picture ofwhere the real money goes in and out
Starts with net income and backs out non-
cash items How does the company use its cash?
Compare that to managements strategy?
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
9/25
Brief History Lesson
Why this boring dry financial stuff
matters Understanding the big picture
The publics legal rights toinformation
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
10/25
Legal Framework
Crash of 1929, Congress holds hearings
Securities Act of 1933 - creates SEC
Securities Exchange Act of 1934 -regulates stock markets, protects
investors
CFR Title 17 - Stock issuing companiesare required to register with the SEC and
file periodic public reports
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
11/25
1980s S&L Crisis
1000s of S&Ls and banks fail due to hot
money real estate lending, ponzi schemes
Jim Wright, Keating Five
FIRREA Financial Institutions Reform,
Recovery and Enforcement Act of 1989,
banned goodwill from bank capital, triggered
ware of federal takeovers
1990s Commercial Bank Credit Crunch
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
12/25
Federal Law Requires Fair Disclosure
SEC issues Reg FD in 2000 to eliminate
selective disclosure of market moving info
Requires publicly traded companies to
disclose material information to all investors
at the same time
Company conference calls with financial
analysts are open; anyone can dial-in.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
13/25
All Lawyered Up
SEC Rule 10b-5 prohibits material
misstatements and fraud
1988 Supreme Court allows shareholder class-
action lawsuits, fraud on the market theory
1995 Private Securities Litigation Reform Act
raises bar for filing shareholder suits
Stoneridge Investment Partners LLC vs.
Scientific-Atlanta, 2008 Sup Ct.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
14/25
2000s Accounting Scandals
Dot.com bust, Enron, Worldcom, et al.
Big five auditor Arthur Anderson indicted
Sarbanes-Oxley Act tightens corporategovernance, requires companies to set
up internal controls
SOX establishes PCAOB
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
15/25
Financial Crisis of 2007-2008
U.S. Housing bubble bursts, causing value ofmortgage backed securities to plummet.
Massive losses on assets damaged bank
capital. Worst Financial Crisis since the GreatDepression. Global financial system nearcollapse amid liquidity crunch.
Bear Stearns, Lehman Brothers 2010 Dodd-Frank Act mandates study of FV,
etc.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
16/25
Business Reporting
Use company financial statements in your
reporting
Ask better questions, probe the right subjects,
establish credibility
Always read the statements first, press release
second. Watch the spin.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
17/25
10-Ks and 10-Qs
Annual Report, 10-K, is audited; QuarterlyReport, 10-Q, is not
Management Discussion and Analysis
Litigation
Certain Transactions
Related Party Transactions
Read and Assess Footnotes
Auditors letter. Clean?
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
18/25
Proxy Statement
SEC Form 14-A, Notice of AnnualMeeting
How much CEO and senior mgmt arepaid
Any side deals between managementand the company
Who the board members are
Questions shareholders will vote on
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
19/25
8-K, Report of Material Event
Must be filed to inform investors of
major developments.
Mergers and acquisitions, major sale ofassets, lawsuits, regulatory penalties
Generally, by definition this is news;
sometimes the PR people spin, or staysilent. Look for what investor relations
people are telling the markets.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
20/25
IPO, or Initial Public Offering
S-1, or Prospectus
Companies that go public or sell stock
to investors through a public offeringmust first file a Registration Statement (S-
1) with Exhibits to the SEC
Facebook; Sold at $38, dropped to $20 intwo months Revenue model issue.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
21/25
Who owns the stock?
Insiders are believed to know more
about their company than anyone else;
Form 144, or Form 4 issued wheninsiders buy or sell shares. Is CFO
dumping shares?
Form 13-D shows buyers of 5 percent ormore of outstanding shares. Activist
investors, controlling shareholders.
Investment funds
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
22/25
Ratios, KPIs, and Warren Buffett
ROE = Return on Equity
ROA = Return on Investment
Expensive or cheap? Book Value vs Price, orPrice to Book = Trading at X times book
value
Compare to Industry Benchmarks
Lehman and Repo 105, leverage ratios, off-
balance sheet vehicles
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
23/25
How To Use Wall Street Research
Listen to the CEO/CFO earnings calls with
analysts.
Follow the jargon; are the analysts focused on
particular ratios or dynamics in the reports?
Get analyst reports and phone numbers;
Develop source relationships.
Institutional investors
Consolidation vs business unit results
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
24/25
Assert Skepticism & Judgment
Just because info is in a companys SEC report,
doesnt necessarily mean its true!
Ask yourself whats real? Wheres the air?? Use a
spreadsheet
Annual and Quarterly reports are snapshots;
economic entity depicted is actually continuous.
Management disclosures in a competitiveenvironment; strategy vs. economic and industry
trends, changing business models.
7/29/2019 Bill Roberts-- How to Read Company Financial Statments; A Primer for Journalists
25/25
How to Read Company Financial
Reports
Bill Roberts
202 329 7157
mailto:[email protected]:[email protected]