Sunday, July 6, 2014
Leaning From Public Company Annual Reports for future profits
Preview Investor Learning from Annual Reports: the Case of Genuine Parts Corporation Genuine Parts Tends to Publish a Table of Their Annual Profitability and Success Year After Year Since the Company Began. it is Worth Having a Look At Investors can learn something by getting hold of a Genuine Parts Corporation Annual report and looking at the long term profitability table they include near the front of each report. Year after year going back to the 1920s the company tabulates their financial progress including revenues, income and taxes paid. All years of their existence in business are there to see. You can find "Genuine Parts Annual Report" online. Here is one link that may not include the latest annual reports: http://www.genpt.com/portal/page/portal/GENPT.COM/annualrpt The lessons investors can learn from looking at these annual reports is how a good quality business can u usually exceed it's own expectations continuing to grow year after year and even survive and thrive in the great depression. The company is hardly the most sexy company one can look at but it is one with a recorded financial history in their annual reports that shows how a good company can have its profitability exceed its rate of taxation and how almost every year its revenues continue to grow going back nearly a century. Genuine parts is probably not the most sensational company that ever existed or grew out of nothing but it's long stable history of growth can instantly give investors an idea of what they should basically look for in other companies they invest in. The trick to investing in Genuine Parts is either to have purchased the shares as early as possible and to have sit back and watched them grow or to have found point in time when the share price sold at a the largest discount to their intrinsic value. Investors could have purchased shares at very reasonable prices when the market was in a general free fall at various times during it's history and those investors would have been even more richly rewarded. There is something thus to be said about a company with a stable business as opposed to being more of a flash in the pan growth stock where success is not as predictable as at Genuine Parts. It is also fascinating to compare one's own business with the figures presented in these annual report tables. Chances are your own business may not have the same level of efficiency as Genuine Parts and chances are your business may not have the same efficiency in paying income taxes. The years of paying income taxes also adds up. What an expense. Fortunately for auto parts buying customers the taxes are a smaller share of revenues than they are of income . This would seem to mean that genuine parts does not pass on to its customers a huge mark ups as their net income is a small percentage of revenue. Income taxes are very significant and that is something investors should pay attention to as it is presented in their annual reports. To see how the company might have performed you can go to the date of your birthday and then see what the equity value would be then and compare it as a ratio to this year to see what a $1 investment would be had you been able to purchase your shares at the price equivalent to the equity value per share on your birthday. Had you paid more than the equity per share on that date your investment progress would not be as good as illustrated. That listen to learn then is that buying shares of a stable company like genuine parts really really can pay off very well if you can buy it at a discount to equity value almost any time along the time line. Now as Genuine Parts is a more mature company you can see the growth rate has really slowed down or has it? It may be slowing down because the company maybe selling more inexpensive foreign made parts at higher profit margins today than in the past and it may be expanding in countries around the world and not just in the US? Few American listed stock market companies publish a table the way genuine parts does. There are similar tables published by Value Line that you can look at. This particular table is very useful and informative. It is too bad more major corporations don't publish anything as simple and informative to look at in their annual reports. It is noteworthy that Genuine Parts puts equity in the table and not share price which is more common by listed American Companies trading on stock markets. Have Look at the 2010 or later annual report to see they probably are on the same stable path of profitability and little has changed. .