Ann: Preliminary Final Report, page-14

Well when I asked the question it was in regard to looking at the most recent set of results (assessing the result); your comments on the pristine quality of the result and the ease of reconcilliation is what interested me.

Yes, of course; that was a bit of a dumb response from me given the context of your question


"That said I would be interested to see what you could condense into a forum post about the former, if you were to write it."

Well, the problem is being able to articulate it in a concise manner within a forum post.
Because the way I assess the quality of a reported financial result on the day is by plugging the figures in the financial statements into my Excel-based financial model, which has certain diagnostic ratios that run off the key elements of the financial statements.

The main things for those diagnostic ratios test is for the "cleanliness" of the reported profits, i.e., to what extent are they presented with elements of conservative-ness (or, conversely, on the basis of some libertine interpretation and application of the accounting standards, it of not with the use of outright accounting alchemy).

Because, what very few people appreciate, I've observed, is that when a company says, "We made a Net Profit After Tax of One Hundred Million Dollars", is that the profit figure being quoted is really only an approximation of the profitability of the business, and not a precise number. And the reason it is not - and cannot ever be - a precise number is because it is derived from the making of a number of assumptions on the part of the company's financial managers, its directors, and it auditors.

So what that company really should be saying is, "We believe that, based on the assumptions we have made, we believe the company made a Net Profit After Tax of One Hundred Million Dollars, but there could be a variation around that figure of plus or minus X million dollars".

While it is far from an exact science, what I try to do when a company reports its results, is to discern for myself what the possible magnitude, as well as what the sign is (i.e., plus or minus), of that variance.

It will take a great deal of effort for me to write a post of how this works in practice, so the best thing I can suggest is to offer to e-mail a copy of my TME financial model to you, if you are really interested, and you can see for yourself the sorts of diagnostic ratios and reconciliations that get performed on result reporting day.