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When reading the annual report, we need to compare the company's previous annual reports horizontally to see if there are any data anomalies, such as accounts receivable and notes receivable. Compare the annual reports of several companies in the company's industry, compare the profit rate, sales revenue and so on. I'm not afraid of not knowing the goods, but I'm afraid of shopping around and I'll probably know the score when I compare them.
False annual reports of listed companies are nothing more than increasing profits or assets. As long as we start from these two aspects, we will soon find out whether it is fraudulent. The main source of false accounts is accounts receivable. In fact, it is to borrow the company's products to buy and then give money. By expanding accounts receivable, we can increase the company's assets and increase the company's profits. But in this case, it cannot increase the cash flow. Therefore, once it is found that accounts receivable have increased greatly, profits have increased, but accounts receivable have not increased. Need to check the notes of accounts receivable in the annual report. Look at the details of accounts receivable and judge whether it is fraudulent.
Investment in fixed assets is a minefield of fraud. Because of the investment in fixed assets, companies can use it to build buildings and properties and increase profits by reducing costs and increasing profits. This requires investors to check whether the investment cost and income are reasonable in the bill, and at the same time go to the company to see if they are really engaged in construction. If the deviation is large, it is likely to be false.
Cash flow statement, we need to focus on it. Because all profits and assets are increasing, cash flow must be generated. If there is no strong cash flow, including inflow and outflow, the increase of your assets and profits is false. This can get a rough average from the annual reports of many companies in the industry.
Use common sense to judge whether the annual report data is fraudulent. Generally, a company is the leader of the industry, and its profit and asset scale can exceed 20% of the industry average at most. If a company is not a leader, but its profits and assets are high in a certain year, it is probably bragging.