By Gerald Trites, FCA
The Web has become a prime source of information for investors in making serious investment decisions. In particular, the Investor Relations sections of corporate websites contain much of the information needed to make a decision to invest, to hold or to sell.
At one time, printed annual reports were the primary source of information for investors, analysts and other intermediaries. But now, although they are still being used, they have been replaced by the Web. The reason is that the annual (and interim) reports are always included in the websites, but there is a lot more information there than ever before, which amplifies and complements the formal reports. And the information is a lot more accessible, usable and varied.
But now investors have a quandary. With all this rich information to work with, how do they avoid getting lost in all that detail? What should they look for? What is the most important information? And how do they use it?
The most obvious information is usually heavily reported in the press. This includes net earnings, earnings per share, dividends paid and the dividend yield. But that’s only the tip of the iceberg. What you really want to know is how sustainable are these earnings. And whether they are heading up or down in future periods. These are broad issues, and involve tying together a range of information in making decisions.
Companies have been working hard to improve their IR websites to help investors deal with these challenges. They try to make their sites friendly, informative and easy to navigate. Many have also been innovative in presenting information to investors in new and innovative ways. For example, the Data Tool in the site for Potash Corporation, one of the leaders in financial reporting, represents a recognition that investors want to have data they can download and analyze on their own terms. Other leading companies like Agnico-Eagle are doing the same.
Most companies have at the beginning of their IR section a series of key performance indicators. Often these indicators are unique to their industry and can help to provide a roadmap to the investor’s investigation. Sections like the CEO’s Report often speak to significant changes in these indicators. Of course, the financial statements are crucial and deserve a thorough reading. Many of the companies provide them in HTML format. The advantage of this, as opposed to the provision of PDF versions, is that individual items can be linked to relevant notes to the financial statements and the MD&A, which provide more explanation of the changes in the numbers and, in the case of the MD&A, more forward looking information to help in making judgments about the future. And most of the websites include the proceedings of analyst conference calls, which often provide timely and relevant information about recent results and plans for the future.
Drilling down is a fundamental characteristic of the Web and drilling down from the key indicators to the detailed information that helps to explain them is a logical and effective means of investment analysis.