Read the fine print: Perennial

Investors should be reading the “fine print” in companies’ annual reports, a lesson learnt from the financial crisis.

John Murray, managing director of Perennial Value Management, said of the key issues emerging from the crisis, investors have realised the importance of reading the “fine print on the back of an annual report”.

“It sounds like a pretty simple one, but it’s something investors generally forget to do,” Murray said. “I’ve always thought that at the front, the large print giveth, and at the back, the small print taketh away.”

Murray noted the ABC Learning experience as a memorable example.

“It was a stock that we never invested in, you know, for a whole lot of reasons. But … as you just kept flicking through the annual report and got towards the back, you started to really note the accounts, in terms of how they accounted for intangibles and the level of related party transactions and all that sort of stuff.

“You’re sort of reading all of this and thinking, hang on, there’s something not quite right here,” he said.

Murray said investors have also realised the significance of balance sheets to a company’s performance.

“We’ve always concentrated on the strength of balance sheets. However, that’s not always the case with all investors. In the good times, investors became preoccupied with earnings, and earnings per share growth,” Murray noted.

He said as investors entered the downturn, they realised the importance of soundly structured balance sheets.