Critical point of management analysis:-
1. Check the promoter and auditor profile first and their past history.
[e.g. The auditors of KRBL are the Bindal Brothers (Vinod Bindal and Sanjeev Bindal).
Back in 2014, the CBI restrained them from working with the government and its officials. The CBI suspects they manipulate contracts and government functioning.]
2. Check the investment group which are invested there and their history.
3. It is essential to search for the name of the company with certain keywords like “Fraud, Issues, SEBI, Dispute, Court etc.” One such search attempt should give an investor about any critical information that might be present in the public domain.
4. Moneylife is very active in writing about corporate frauds and it is highly likely that if any listed company has been involved in any issue, then Moneylife would have covered it on its website. Therefore, investors may use the keyword “Moneylife” as well to search for the issues related to any company.
5. The salary taken by the promoter/management of the company is one of the key parameters that can give critical insights into the management intentions. Usual salary range for promoter directors/management is about 2-4% of net profit after tax (PAT). The salary generally contains 2% commission on PAT and a fixed monthly component along with other perquisites.
6. Related party transaction section is a goldmine of the information for assessment of any management. By studying each transaction in this section, an investor can conclude whether the promoters are benefiting from the company at the cost of minority shareholders.
[e.g. like the agreement is for sale & purchase, payment of commission on sales including overseas sales and reimbursement of expenses to some Other company owned by some relative of promoter ]
7. In related party transactions, many times, investors will find cases where the company has given the same amount of loan to a counter party and takes it back within the year. Such transactions also need scrutiny. It might be that the company wants to help the third party with money but wants to avoid showing it as a loan in the balance sheet. On the contrary, it might be a transaction as well with a genuine reason. In such cases, looking at previous annual reports to find out similar pattern will help the investor in getting more information that is relevant and in turn make an informed decision.
8. Over the years, promoters/majority shareholder have been treating warrants as a means to give special treatment to themselves. The special treatment might be related to pocketing risk free gains and to gain/increase stake through backdoor channels.
Risk Free Gains: Converting a situation of potential increase in costs to potential gains.
[e.g. Immediately convertible warrants are issued at a discount to the market price of the stocks of the company, then it amount to handing over free money to promoters/majority shareholders as promoters do not need to anything else other than convert the warrants into shares the same day and sell these shares into the market to pocket the amount of discount as a risk free gain.]
Management Focused on Share Price:
1. Check the promoter and auditor profile first and their past history.
[e.g. The auditors of KRBL are the Bindal Brothers (Vinod Bindal and Sanjeev Bindal).
Back in 2014, the CBI restrained them from working with the government and its officials. The CBI suspects they manipulate contracts and government functioning.]
2. Check the investment group which are invested there and their history.
3. It is essential to search for the name of the company with certain keywords like “Fraud, Issues, SEBI, Dispute, Court etc.” One such search attempt should give an investor about any critical information that might be present in the public domain.
4. Moneylife is very active in writing about corporate frauds and it is highly likely that if any listed company has been involved in any issue, then Moneylife would have covered it on its website. Therefore, investors may use the keyword “Moneylife” as well to search for the issues related to any company.
5. The salary taken by the promoter/management of the company is one of the key parameters that can give critical insights into the management intentions. Usual salary range for promoter directors/management is about 2-4% of net profit after tax (PAT). The salary generally contains 2% commission on PAT and a fixed monthly component along with other perquisites.
6. Related party transaction section is a goldmine of the information for assessment of any management. By studying each transaction in this section, an investor can conclude whether the promoters are benefiting from the company at the cost of minority shareholders.
[e.g. like the agreement is for sale & purchase, payment of commission on sales including overseas sales and reimbursement of expenses to some Other company owned by some relative of promoter ]
7. In related party transactions, many times, investors will find cases where the company has given the same amount of loan to a counter party and takes it back within the year. Such transactions also need scrutiny. It might be that the company wants to help the third party with money but wants to avoid showing it as a loan in the balance sheet. On the contrary, it might be a transaction as well with a genuine reason. In such cases, looking at previous annual reports to find out similar pattern will help the investor in getting more information that is relevant and in turn make an informed decision.
8. Over the years, promoters/majority shareholder have been treating warrants as a means to give special treatment to themselves. The special treatment might be related to pocketing risk free gains and to gain/increase stake through backdoor channels.
Risk Free Gains: Converting a situation of potential increase in costs to potential gains.
[e.g. Immediately convertible warrants are issued at a discount to the market price of the stocks of the company, then it amount to handing over free money to promoters/majority shareholders as promoters do not need to anything else other than convert the warrants into shares the same day and sell these shares into the market to pocket the amount of discount as a risk free gain.]
Management Focused on Share Price:
