Analysts often rely on information contained in a company’s financial statements as a primary source of information about the company. While a company’s financial information may indeed be useful, it is important to note the timing limitations of financial statements. Financial statements provide information only up to a particular date (the Financial Statement Date). A comprehensive and useful analysis would need to cover the time that has passed since the Financial Statement Date as well.
The concept of 4 Buckets of Time helps prompt us to consider a more complete perspective of time.
Bucket 1- Historical (up to Financial Statement date)
The First Bucket refers to information up to the Financial Statement Date that we have discussed above. The information is usually only made available at least a few months after the Financial Statement Date. The key is to note that some time has passed since the financials that are being reported in the statements.
Bucket 2- Between Financial Statement Date and now
Bucket 2A:
Time taken to prepare: Even the most freshly issued financial statements would have some time in Bucket 2. Companies take time to prepare and consolidate their financial information. Audited financials would take an even longer time. Material events that occur during Bucket 2A may be disclosed in the notes to financial statements as “Events After the Balance Sheet Date”.
Bucket 2B:
Bucket 2B refers to the time that has passed after the statements have been issued. These events have occurred and research on this bucket can be done using a simple internet search or consultation with the company management.
Using Singapore real estate investment company Capitaland as an example, the company directors and auditors signed off on the 31 Dec 19 financial statements on 3 Mar 20, and the annual report was published on 6 Apr 20. During the 2-3 months after 31 Dec 19, the world saw the devastating spread of COVID-19, resulting in lockdowns and mandated closures of many retail outlets.