- July 30, 2022
- Posted by: Ramkumar
- Category: Posts
The best advice to a professional who wants to excel in valuations is to read companies’ annual reports and IPO prospectus. I owe my fundamentals in valuation to the annual reports that i have studied while doing my MBA. However, i cannot give the same advice to the upcoming professional who wants to excel in valuations for the following:
1)The annual reports have become too long, convoluted, and filled with legal and accounting jargon that makes little sense.
2)The sections: Risk factors, internal controls, and fair value impairment run into volumes of pages with high redundancy and lack of readability. When I read these sections, I could not derive any additional insights into the company.
3)Emerging companies with high cash burn (Zomato, Uber, and Airbnb) resort to creative accounting by adding back stock-based compensation, capitalizing expenses (like customer acquisition costs), and treating operating expenses as one-time or extraordinary.
As more retail investors invest in the stock markets and the IPOs, companies should draft #redherringprospectus and annual reports that are concise, readable, and give detailed projections of their earnings that help investors make sound investment decisions.