REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
|
|
 |
Annualisation
Introduction
If a
company changes its financial year end, for example from 31st
December to 31st March, then its next annual accounts will cover
a reporting period of either 3 months or 15 months, rather than
the regular 12 months. In this situation, many of the statistics
in Company REFS for the non-standard period are adjusted
to compensate, and are shown on a per annum basis and not as
reported.
Examples
of figures which would need to be adjusted to an annualised
basis, or which would be affected by such adjustments, include
EPS, earnings growth, annual DPS, PER, ROCE, and PCF. Note that
this is not an exhaustive list.
Examples
of figures which would not need to be annualised include
gearing, margin, tax rate, and interest cover.
Attention
is drawn to the need for caution when interpreting annualised
values
Illustration:
Below
is an illustration of how the inclusion of a non-standard period
can distort a trend, and how the distortion can be corrected
by adjustment to a per annum basis:
A company
regularly increases sales by 20% each year. Having reported
to 31st December 1993, it decides to change its year-end to
31st March, so that the next accounts cover the 15 months to
31st March 1995. The sales figures would appear on an ‘as reported’
basis as follows:
The annual
increase in sales, without compensating for the change in year
end, would appear as follows:
To adjust
the sales figures to an annualised basis, the sales for the
non-standard period are divided by the number of days in that
period (456 days in the example), and then multiplied by 365
(the number of days in a standard period).
365
2,160 X -----
= 1,729
456
The sales
for the 15 months to 31st March 1995 are adjusted as follows,
and the sales figures are shown on an annualised, or per annum,
basis:
The annual
increase in sales, after compensating for the change in year
end, is now in line with expectations as follows:
|
|
|
