In the last issue of the Hong Kong Stock Investment Guide, we discussed how to build a ** pool. We can start with the industry, study the industry of interest, and put the relevant **into the ** pool. However, regardless of the direction of investment, we believe that the banking sector is a must-watch. Because banks are the mother of all industries, the situation of the banking industry can often reflect the direction of macroeconomic changes and predict the changes that will occur in various industries. The most important way to build a ** pool is to study the financial statements of listed companies. This course will discuss financial statement analysis.
There are some differences between the financial statements of Hong Kong stocks and A-shares, for example, A-shares take the natural year as the financial year, and the annual report is disclosed within 4 months, which is generally disclosed before April 30 of each year. The financial year of Hong Kong stocks can be set by themselves, which is generally related to the establishment time. For example, if a company is established in September, the fiscal year may be from October 1 to September 30 of the following year. The disclosure period of the annual report of Hong Kong stocks is the same as that of A-shares, which is disclosed within 4 months.
Both Hong Kong stocks and A-shares are required to disclose interim reports. A shares are required to disclose quarterly reports, but Hong Kong stocks are not. Generally speaking, the annual report has sufficient preparation time and the most detailed information is disclosed, while the interim and quarterly reports generally only disclose basic financial data.
Please note that the financial statements of each industry have their own characteristics, and it is important to pay attention to them when analyzing. For example, in the real estate industry, revenue and profit can only be recognized by handing over the property. Even if the house is sold and the down payment and mortgage loan are received, the income and profit are still not recognized, and they can only be used as advance accounts. As a result, the net profit of real estate companies is lagging behind, and this year's performance is good because of the good sales in previous years. If you ignore this, you risk making the wrong decision.
If you haven't researched this company in the past, it is advisable to read through the financial statements from start to finish to get a comprehensive understanding. If you have already researched it, you can just read the key sections and get the information. For example, in the financial summary section, you can get an idea of the company's main financial data. For example, in the management discussion and analysis section, you can know the company's management's views on the industry and the company's operation. In the report of the board of directors, you can learn about corporate governance, management shareholdings, dividends, etc. The most important part is the notes to the financial statements, which can understand the reasons for the changes in each account.
If a listed company is financially fraudulent, how can investors identify it?Here are a few examples of financial fraud, and investors must be cautious if they occur.
The first is to change the accounting firm. Generally, accounting firms will issue a "standard unqualified" audit report. If there are reservations in the audit report, then investors will stay away, as this is often a precursor to a thunderstorm. In order to avoid this situation, some listed companies change accounting firms when problems occur, and induce new accountants to issue false audit reports with profits. Therefore, we must be cautious in the event of a replacement, especially when a large firm is replaced by a small firm, and the international "Big Four" is replaced by a domestic firm. It's best to wait and see first, and don't take it lightly.
The second situation is that we should be cautious in investing in agriculture, forestry, animal husbandry, and fishery. Because of these industries, inventory is cattle, sheep, pigs, fish, shrimp, crabs, etc., which has always been a difficult point for auditing. In case of typhoons, swine fever, avian flu, will suffer huge losses, more serious is that these natural disasters are often financial fraud of listed companies to close the accounts, a typhoon passed, how many fish lost in the fish pond, no one can say. Listed companies can exaggerate losses and erase previous false accounts. The most typical example here is Zhangzi Island. "Scallops don't stay, like a spring breeze coming and going", has become a nightmare for countless investors.
Here we must explain that there is no problem in the agriculture, forestry, animal husbandry and fishery industries, and they also have investment value, but the characteristics of the industry are relatively complex, so we must be cautious.
The third is accounts receivable fraud. This kind of financial fraud is a relatively low-level means of registering a new company, signing a purchase contract with the listed company, but not paying, so that the inventory of the listed company becomes accounts receivable. According to accounting standards, accounts receivable can recognize revenue and profit, so net profit is inflated. The more advanced method is the real payment, but the payment will be transferred back in the name of consulting fees, consultant fees, etc. This is more difficult to check, but if you carefully read the financial statements for more than 5 years, you can still find clues.
The fourth is inflated cash. As we know, a balance sheet is a static statement that reflects the situation on the current day of the balance sheet date. Then, if the listed company transfers the funds in the day before, and then transfers the funds back after the balance sheet comes out, it can inflate the cash. Kangdexin, a well-known white horse stock that has been delisted, used this method to forge more than 30 billion yuan of bank deposits.
How do you find out if a listed company has inflated its cash?Quite simply, look at its liabilities. Because debt is interest-bearing, listed companies have a lot of cash on hand and will definitely repay their liabilities if there are no new investment projects. If both cash and liabilities are high, then its cash tends to be fake.
The above four are the main methods of financial fraud, in addition to not accruing bad debts, treating bad debts as accounts receivable, and extending depreciation and amortization. This also shows the importance of the dividend payment that we talked about in the first issue. Anything can be faked, and dividends from real gold ** will not be faked.
There are two ways to crack financial fraud. The first is horizontal, comparing the three statements, namely the balance sheet, the income statement, and the cash flow statement, with each other and verifying each other. The second is vertical, carefully reading the financial statements for more than 5 years, and in-depth analysis of changes in financial data. As long as it is fake, it cannot be seamless, and there will always be clues.