I recently looked into a local listed company involved in the aerospace industry. It is NOT a business that suits the value investing tenants. It is actually a company that has been having net losses for the past 3 financial years (FY2009 to FY2006). I analysed this company to learn from the mistakes of this company and to not have these negatives in the company that I invest in.
Looking at the FY2009 annual report, the CEO’s message didn’t touch on the losses and what the company did wrong. I was looking if there were reasons given by the CEO for the dismal results for the past few years but it was nowhere to be found in the CEO message. This is very atypical of a good CEO. A responsible and honest CEO would talk about the losses and share with the shareholders what went wrong frankly and not sweep them under the carpet.
In the 2007 annual report, the CEO mentioned, “We believe we can overcome challenging times”. In 2008, the CEO cited, “We will overcome the challenging times ahead s we overcome the previous ones, emerging even stronger”. However, all these are not evident in the financial statements which can’t really lie unless one cooks the books.
Under the operations review section, the losses were solely blamed on the financial crisis even though the company has been having losses consistently and not only for that particular year.
Looking at the balance sheet, the company has huge trade receivables almost year-on-year and this is affecting the cash flow of the company.
Thus, when investing in a company, do look out for an honest CEO message and strong financials. You are putting money in a company so you would surely want the company to be run by truthful, dependable and competent people who can grow your funds.