The Investor's Guide to Understanding Accounts

I. WHY YOU CANNOT AFFORD TO IGNORE COMPANY ACCOUNTS

Introduction
Aim of this book


II. THE 10 TESTS THAT A SET OF ACCOUNTS MUST PASS

1. Is the company growing?

- Sources of sales
- Business focus
- The future sales outlook

2. Are costs under control?

- Comparison to sales
- Extraordinary and exceptional items
- Depreciation
- Working capital
- Tax
- Research & development

3. Does it make a profit?

- Profit margins
- Gross profit
- What is the return on capital employed?
- What is EBITDA?

4. How much cash does it have?

- Cash generation and consumption
- Paying suppliers
- Getting paid by customers

5. Is its market value supported by assets?

- Market value
- Enterprise value
- Fixed assets
- Current assets

6. Is it using debt wisely?

- The level and type of debt
- Paying off debt

7. Are there any hidden nasties?

- The level of liabilities
- Contingent liabilities
- Tax
- Pension liabilities

8. Is management good enough?

- The Combined Code
- Incumbents
- Strategy
- Directors' salaries
- Shareholdings
- Employment contracts

9. Can I expect a reliable income?

- Dividend policy
- The 'price' of dividend income

10. Are there any threats to my interests?

- Who owns the company?
- Other issues
- External threats to shareholders
- The ultimate threat


III. APPLYING THE 10 TESTS TO DIFFERENT TYPES OF BUSINESS

Aerospace, AIM companies, Airlines, Alcohol and breweries, Automobiles, Banks, Business Services, Chemicals, Construction, Construction materials, Engineering, Food manufacturing, Food retailing, Football clubs, Household goods, Insurance, Internet companies, Investment trusts, Leisure industry, Media, Mines, Oil industry, Pharmaceuticals, Property, Retailers, Shell companies, Technology companies, Telephone companies, Television companies, Tobacco companies, Utilities, Wholesalers & distributors


IV. THE RELIABILITY OF REPORTS AND ACCOUNTS

- The main financial statements
- Are accounts reliable?
- The Auditor's report
- Legitimate ways for companies to 'improve' their results
- Fraud


V. SUPPORTING INFORMATION FROM OUTSIDE THE ACCOUNTS

- Updating the information in accounts
- Independent research
- Directors' dealings

VI. SUMMARY
- 10 signs of a company in good health
- 10 signs of a company in trouble
- Key accounting ratios and measures

APPENDICES

1. Sources of company accounts
2. Software for investors
3. Glossary of accounting terms
4. Common abbreviations in accounts and investment
5. Companies mentioned in this book
6. Further reading on company accounts

INDEX