Analysis of Annual Report

1. 5 years key performance
- revenue, profit before tax, earning per share, dividend per share, return on asset, return on equity, nett tangible asset etc.

2. Chairman and Directors' Report
- highlight the achievement in the year as well as laying out goals, future plan, their strengths and challenges for the future

3. Financial statements-Balance Sheet, Profit and Loss and Cash Flow
- look for the change in performance year-on-year, symptoms of red flags that require investigation and to get answers.

Fundamental analysis to compared with previous financial year to assess the change:
1. Revenue growth
- this should reflect on the earning growth, if all other variables in the earning formula are constant.

2. Gross margin
- this will reflect the profitability of the goods and services of the company.

3. Earning per share
- to calculate the price earning ratio to compare with companies in the similar industry. The company valuation can be computed from this PE ratio. But it is important to update this valuation after every quarterly report. If the company has revenue growth, but without earning growth, it merely means that the increased revenue had not resulted in higher earnings. This can be a red flag and possible reasons could be lower margin, ineffective new investment that generate nore revenues, but had not increased earning per share.

4. Inventories
- ratio of inventory value/revenue. The change is important here, as inventories are tied up capital, and an abnormal increase may indicate problems like rejects or poor quality or poor product mix decisions

5. Receivables
- ratio of of total receivables/revenue - a big increase may mean possible bad debts

6. Cash on hand
- an indicator of financial health as it is the most liquid asset, and the debts status of the company

7. Operating cash flow
- This is directly dependent on the net earnings, and I would say it must be higher than the depreciation value to be considered health

8. Extraordinary gain/loss and impairment loss
- this is the special one time occurrence gain/loss items, and the earnings per share calculation should exclude this figure to reflect fair comparison with other years as well as forecasting the prospect

9. Segmental information
- the assessment of performance of different business segments and their prospects

10. Administrative expenses
- these are the management controllable costs that includes write down of inventories, provision for bad debts and directors remunerations

11. Board members and the management team
- to know their background and experience of management team.

12. Substantial shareholders list
- to see whether there are funds holding the stock.