The Totally Practical, Not Even Slightly Sarcastic or Frustrated, Investor’s Guide to SEDAR – Part Four

This is the fourth installment in this guide to utilizing Sedar. You can find parts one, two and three here.

Question: Where can I find a company’s cash position?

Answer: You can find how much cash a company has on hand on their statements of financial position (more colloquially referred to as a balance sheet), which is located near the beginning of a company’s financial statements. If you want to review a company’s cash position for their fiscal year-end, you should open their audited annual financial statements. If you are checking for an interim period, such as the end of their third quarter, you would open one of their interim financial statements/report that corresponds to the period you are searching.

If you are reviewing a company’s cash position, there are a couple things you should keep in mind. First, financial statements take time to prepare, and the cash position stated in a company’s most recent financials may be up to four months old (or longer if they are a delinquent filer). Many things can happen in this interim period, such as a company generating more sales, incurring additional expenditures, or raising more funds from investors. Second, most sophisticated companies will not just leave significant amounts of cash in their chequing account not earning any interest. Many will purchase short-term interest-bearing instruments (such as GICs) where they can put that cash to work. As a result, many companies may have a substantial amount of ‘marketable securities’ or ‘short-term investments,’ which should always be considered if you are assessing how much runway a company has left.

Question: Where can I find a company’s revenue?

Answer: You can find how much revenue a company has earned for a period on their statements of (loss) income and comprehensive (loss) income (casually referred to as an income statement), which is located near the beginning of a company’s financial statements. If you want to see a company’s revenue for the entire fiscal year, you should open their audited annual financial statements. If you are checking for an interim period, such as their second quarter revenues, you would open one of their interim financial statements/report that corresponds to the period you are searching. Note that if you were interested in a company’s fourth quarter revenue, you will find that the audited annual financial statements will not typically break this figure out separately. To see a company’s fourth quarter revenue, you may need to review the Management Discussion & Analysis (“MD&A”) that accompanies a company’s year-end results – as it often provides a breakdown for the fourth quarter. Unfortunately, if a company does not provide the breakdown in their MD&A, you just might be stuck doing the calculation yourself.

Question: Where can I find a company’s EBITDA/Adjusted EBITDA?

Answer: While you might reflexively believe you can find a company’s EBITDA in their financial statements – this is not the case. EBITDA/Adjusted EBITDA are non-IFRS measures, and while you might see the term EBITDA referenced in a set of financial statements (perhaps in reference to a debt covenant), you won’t find the actual EBITDA figure there. Assuming a company calculates and provides an EBITDA figure (many do), you can typically find this figure in their Management’s Discussion & Analysis (“MD&A”) that accompanies their financial statements, or in the accompanying press release. If you are trying to compare the Adjusted EBITDA of two companies, keep in mind that not all companies calculate this figure the same way – so you’ll want to review how the company defines the term which can be found in the MD&A.

Question: Where can I find how much management is being paid?

Answer: Details about management compensation can be found in a company’s annual Management Information Circular. It will include details about how much a company’s named executive officers and directors are being paid both in cash and securities for their services. Note that companies occasionally file special management information circulars in addition to their annual ones, typically for unique events such as a major transaction that may require shareholder approval. If you can’t find the ‘executive compensation’ section in a management information circular, you have likely clicked on one of these unique circulars and you should just move on to the next one. Also, companies can periodically see officers and directors replaced throughout the year, but their compensation packages may not be evident right away. Some companies will file supplemental compensation details about these new hires shortly after they are made, but many wait until their next management information circular has been filed to disclose all the details.

Question: Where can I find how much a company paid for an acquisition?

Answer: It is fairly common for companies to put out a press release when they have entered into a definitive agreement, or even just a letter of intent, to purchase another company. This release will often include the company’s rationale for the deal, a self-congratulatory quote from management, and the high-level economic terms. Despite the fact an acquisition price may be mentioned in this initial press release, by absolutely no means should you rely on that initial press release for the ultimate acquisition price.

The reality is that deals can change and evolve from the issuance of the initial press release to the definitive closing of the transaction. To give you a particular example of just how disparate this gulf can be, when Canopy Growth Corporation (“Canopy”) announced they would be purchasing HIKU Brands Company Ltd. (“HIKU”) on July 10, 2018, it was widely reported based on the deal economics mentioned in the initial press release that the acquisition price would be approximately $250 million. By the time the deal has closed on September 5, 2018, the acquisition price was revised upward to just over $600 million – a difference of ~$350M from initial reporting to close.            

To determine the ultimate acquisition price, you’ll want to go to a company’s audited annual financial statements or interim financial statements/reports which reflect a period following the closing of the acquisition. In the accounting notes, companies will often have a section entitled Acquisitions or Business Acquisitions which provides granular details about how much they paid for their acquisitions and how the purchase price was allocated. (i.e. How much was allocated toward inventory, goodwill, etc.). Note that as time passes, granular details of historic acquisitions will be removed from a company’s financial statements. For example, the aforementioned acquisition of HIKU by Canopy was mentioned in Canopy’s 2019-Q2 interim financials, 2019-Q3 interim financials, and 2019 full year audited financials – but had been removed by the time Canopy reported their interim Q1 results for fiscal 2020. It should also be noted that when an acquisition is exceptionally small, it may not be given any granular disclosure at all – and instead find itself lumped into an ‘other’ column.

Question: Where can I find information about a company’s outstanding warrants/options?

Answer: Many investors have found themselves particularly frustrated when a company that appears to be performing well, fails to get the same recognition and share appreciation as its peer group. A potential cause of this phenomenon is that a company’s capital structure has been stuffed with warrants and stock options with low exercise prices. Whether this is the result of generous warrant terms demanded by early investors or management issuing an abundance of cheap options to their employees (or themselves) – the effect can be an anchor on a company’s stock price. For this reason, many investors who don’t want to be blindsided may seek out the key details of a company’s outstanding warrants and options.

You can find these key details within a company’s audited annual financial statements and interim financial statements/reports in a section of the accounting notes labeled Share Capital. Within the Share Capital section is a description of a company’s securities, including key information about a company’s warrants and options – such as their exercise price and remaining life before they expire. You may also find additional details that may be relevant, such as the terms by which options that are vesting over time may have their vesting period accelerated.  

Question: Where can I find who a company’s auditor is?

Answer: You can find out who a company’s auditor is on their SEDAR Profile Page. Unfortunately, as mentioned in Part 2 of this series, it is possible for this information on the profile page to be out of date – most often because a company has made a recent auditor change and has failed to update the page.

If you think a company might have changed their auditor and the SEDAR profile page may be out of a date, there is an alternative path to verification. First, you can go to the most recent audited annual financial statements and find, at the beginning of the document, the name of the auditor accompanied by their opinion of the financial statements. Next, you’ll want to verify that the company has not changed auditors since their last set of audited statements. To do this, you’ll want to see if they have filed a Notice of a change of auditors which will be accompanied by both a Letter from former auditor and a letter from successor auditor. I would note that it is possible that, for at least a brief period, a company can have no auditor whatsoever. It isn’t unheard of for a public company’s auditor to quit outright and refuse to wait for a replacement. In that case you may find that a company has filed both a notice that they are changing auditors and a letter from their former auditor, but no letter from the successor auditor stating they will be taking over. An example of this occurred when Namaste Technologies Inc.’s auditor resigned outright on February 15, 2019, and the company had not engaged a replacement until March 15, 2019.

Question: What accounting notes should I be on the lookout for?

Answer: At the bottom of every set of filed financial statements is a series of accounting notes that provide additional insight and detail into the numbers that are captured above. While it can be reasonably argued that all the notes are important to fully understanding a company’s financial statements, what notes you choose to prioritize will depend on the focus of your analysis. If you are concerned about a company’s debt obligations, you may want to prioritize the note on Loans and Borrowings that discusses the terms of their debt obligations, and, occasionally, what covenants they must maintain to stay compliant with their lenders. Alternatively, if you are concerned about litigation that has been initiated against a company, you may want to review their note on Commitments & Contingencies.

If you are new to financial analysis, I recommend that you start with the Subsequent Events note, which, if included, is typically listed at the very bottom of a company’s financial statements. Given the length of time it can take to prepare financial statements, it is not uncommon for major corporate events to occur between the end of a reporting period and the publication of a company’s results that may dramatically impact how you interpret their numbers. This section may reveal information key to your analysis of a company, such as the closing of a major capital raise which has shored up their cash position, the laying off of a considerable amount of their workforce, or an amendment to their debt facilities which may limit their ability to borrow.

(Note that the bolded note titles used above may vary slightly from company to company, so it is always best to scroll through the note titles yourself as opposed to punching these into a search bar. Many companies provide a table of contents listing their accounting notes which can save you some time, but this isn’t universally practiced – so you might be stuck scrolling.)

Information for this commentary was found via Sedar. The author has no securities or affiliations related to this organization or any organization mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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