In the September edition of the Hardman Monthly Newsletter, Dr Martin Hall - based partly on his personal experiences as a long-standing investment analyst - addresses various accounting issues that are highly relevant to today's investors. In particular, he concludes that measuring company cash flow - and especially projecting future cash flows - is pivotal to undertaking rigorous financial analysis, irrespective of how individual companies may present it.
In terms of share trading, Provident Financial's shock announcement on August 22nd saw its shares plunge by a staggering 66%. Its smaller comparators, NonStandard Finance and Morses Club - both featuring in this Newsletter - stand to benefit accordingly: the latter's shares rose by over 20% during August 2017 alone.
According to the US Securities and Exchange Commission, “Cashflow statements report a company’s inflows and outflows of cash”. This is such a simple and obvious statement. Unfortunately, the failure of accounting bodies around the world to adopt a consistent reporting method means that the derivation of operational cashflows, is anything but simple and consistent. To highlight the issue, a survey of the companies that comprise the FTSE 100 shows that the ‘indirect’ approach is used by the majority (70%) of companies. There is recognition for the need to improve with a discussion paper issued by the UK Financial Reporting Council entitled ‘Improving the Statement of Cash Flows’.