Prospectus and Proxy statement, part 2

Although the prospectus and proxy statements can provide us with almost complete view about the company's financial position and competitive edges .Sometimes, it does not provide us with enough information to distinguish the investment that will leads us to moderately successful investment or to complete failure.

PT Semen Baturaja is one of the example. Despite the company's financial position and competitive edge from their competitor due to their cement factories location its shareholder saw their investment money evaporate. Since PT Semen Baturaja held its IPO in May 2013, the stock price has drop more than 50% from the IPO price.

In the real world of finance, there are many securities with uncertain returns. This uncertainty translates into an exposure to risk. When it comes to selecting stocks, the rewards for proper action are so huge and the penalty for poor judgement is so great that it is futile for investor to buy stock based on superficial knowledge.

The author believe that the market price fluctuation of one corporation is highly influenced by how people in the corporation make financial decisions. Therefore, investor's understanding on how the corporate finance applies to the financial decisions made within the company is necessary.

On the next post, the author will focus on how the financial decisions are made in the corporation

Prospectus and Proxy statement, part 1

The problem that confronts every investor is that there are literally thousand of stocks in dozens of industries that could conceivably qualify as worthy of the investment. How do you select the one of the very few stocks from all of these stocks which will give you a chance of uncovering an investment that ten years later have increased ten-fold in value?

Does spending hours and hours going over old annual reports and making studies of minor year-by-year changes in the balance sheet will help you to screen out the outstanding stocks that eventually will produce fortunes?

While it is going to help you prospecting the stocks on the basis of knowledge of the facts, you are going to spend so much time before you have done enough work to have a proper basis of your conclusion. It is also may not be easy to recognize that decisions must also be made that can have  a great impact on the chance of investment.

To select  the companies for investigation, analytical and self critical methods of business classification should be used to select one companies rather than another.This business classification such as the determination of the general nature of capitalization and financial position, parts covering breakdown of total sales by product lines, competition, degree of officer or other major ownership of common stock can be obtained from the prospectus and the proxy statement.

Other  informations such as earning statement figures, depreciation and depletion,profit margins, extent of research activity, and abnormal costs in prior years' operations will also be important factors for the decisions that will have tremendous effect upon financial results obtained.

For a case study, we will use PT semen Baturaja’s prospectus as an example , PT Semen Baturaja is an state owned company in the cement industrial sector. The Cement plants of the company are located in Baturaja, Palembang, and Panjang. With the annual  production less than 2 million ton, Semen Baturaja is one of the smallest cement company in Indonesia.

Semen Baturaja held its IPO on May 2013 to finances their new cement factory which will have the capacity of 1.85 million ton at the end of 2016.

With the capital value of 3 trillion IDR, and 9.8 billion outstanding shares, 76% of the shares were owned by the goverment and the  rest of it is for the public.

From the notes to financial statement, Semen Baturaja had 1.097 trillion IDR in sales which have increase  more than 10 % from the previous year.

Base on the prostectus, Semen Baturaja have a competitive edge from their competitor due to their cement factoris which were located in south sumatra. Semen Baturaja controls 26% of the cement market in south sumatra.

From the income statement  Semen Baturaja have EBITDA margin of 38% without any significant changes in depreciation or any cost in prior years’ operation.

All of the above factors can be found from the company’s prospectus or proxy statement as the basis knowledge of the facts for investment decision.