Now that Singapore is slowly recovering from the depth of the global recession in the early part of 2009, we can expect some positive financial results from the companies operating in this environment.
These companies responded during the recession by actively reducing costs of operation, which include reducing payroll costs for the most part of last year. Companies may also provide for less impairment of assets provisions compared to year 2008 since the economic environment has improved. The result could be a positive net profit for the financial year ending 31 December 2009.
When the annual account of a company is released, do not just focus on how the net profit figure has improved over the previous year. You must also look at top line Revenue figure and see whether the business has weathered the recession well with increased revenue. If the net profit is up but the revenue is down, then one can conclude that the cost side of the net profit figure is reduced comparably more than revenue. Without a sustainable revenue stream, one should be wary as to how the business is to address this in the future.
The other usual ratios to review include:
1. Earnings per share
2. Dividend per share
3. Gearing ratio (less is better)
4. Net asset per share (compare this with current share price)
5. Net increase or decrease in cash and cash equivalent for the year (obtained from the cash flow statement- positive is better)
Written on 1/18/2010 6:39 PM
Copyright © 2010, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.