Why the annual report matters
It's the single most honest document a company publishes — the rest is marketing.
The 5 sections to read
- Chairman's letter — tone matters. Vague? Defensive? Skip the stock.
- Management Discussion & Analysis (MD&A) — what did they say last year vs what happened?
- Auditor's report — any "emphasis of matter"? Big red flag.
- Related party transactions — money flowing to promoter's side companies is where governance dies.
- Cash flow statement — profit can be manufactured. Cash cannot.
Ratios worth calculating yourself
- ROCE > 15% consistently
- Debt-to-equity trend (falling is good)
- Cash flow from operations vs reported profit (should track)
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