You will be able to use the notes to check revenue recognition, segment results, lease liabilities and debt terms.
The primary statements in Larkspur's annual report take six pages. The notes take seventy. Most readers stop at the six, which is like reading the scores of a football season without knowing who played whom. The notes say how each number was built, what it includes, what it leaves out and what conditions are attached. Four of them change the picture for almost any company: revenue, segments, leases and debt.
The revenue note explains when the company books a sale. Under SFRS(I) 15 in Singapore and its equivalents elsewhere, revenue is recognised when control of the goods or services passes to the customer. For most product sales, that's on delivery or acceptance. For long contracts, it can be over time as the work is done, using an estimate of how far along the contract is.
That choice matters more than it sounds. A company recognising revenue over time on long contracts depends on its estimates of progress and total cost, and a change in those estimates can move profit without any change in cash. A company booking at delivery can pull revenue into a period by shipping early or offering extended payment terms near the year end.
Larkspur's made-up note, on page 104, said most revenue was recognised when parts were accepted by the customer, with a small amount of tooling work recognised over time. That's the simpler case, and it means Larkspur's revenue should track its shipments closely. The check to make in module 7 is whether receivables grow in step with revenue, because a jump in receivables can mean sales booked before customers are ready to pay.
The segment note splits revenue, operating profit and often assets by business line and by region, using the same divisions management uses to run the company.
This is often the most revealing page in the report. Larkspur had two segments. Semiconductor equipment parts made 85% of revenue and almost all of operating profit. Coatings made 15% of revenue and close to break-even. The coatings segment also carried most of the S$30 million of goodwill from lesson 6.3, The auditor's report, key audit matters and going-concern wording.
So the part of Larkspur that earns the profit needs ordinary capital spending to keep growing, and the part that consumed capital through an acquisition earns very little on it. Segment notes let you ask that question of any company: which part earns the money, and which part soaks up the capital? The geographic split gives a second view, and lesson 4.3, Semiconductor supply chains and export controls, used it to find where revenue comes from.
Before 2019, many companies kept operating leases off the balance sheet and simply recorded rent as an expense. Under IFRS 16, and SFRS(I) 16 in Singapore, most leases now appear on the balance sheet: a right-of-use asset on one side and a lease liability on the other, equal to the present value of future lease payments. The expense becomes depreciation on the asset plus interest on the liability.
That change makes lease-heavy businesses, such as retailers, airlines and companies on leased land, look more indebted than they used to, and it pushes operating profit and EBITDA up, because rent no longer sits above those lines. When you compare companies, check whether figures are before or after leases, and whether a ratio you're reading counts lease liabilities as debt.
Larkspur's lease note showed lease liabilities of S$20 million, mostly for factory land, with a maturity table showing about S$4 million of principal due each year. Small against its total assets of S$410 million, but not nothing. Lesson 7.4, Cash flow statement and free cash flow, shows how lease payments can flatter operating cash flow.
The borrowings note lists each loan or bond with its currency, interest rate, whether the rate is fixed or floating, its maturity and any security. A separate liquidity table usually shows when cash payments fall due.
Read it for three things. When the next large repayment is due, and whether the company has the cash or facilities to meet it. How much is at floating rates, which matters when rates rise. And the covenants: conditions the lenders impose, such as a maximum ratio of net debt to EBITDA or a minimum interest cover. Breaching a covenant can let the lender demand early repayment, which is how companies with otherwise manageable debt end up forced to sell assets or raise equity at a bad price. The rights issues in lesson 5.5, Corporate actions: rights issues, placements, buybacks and splits, often start here.
Larkspur's made-up note showed S$60 million of bank loans, all floating rate: S$10 million due within a year and a S$40 million term loan maturing in three years, with a covenant that net debt stay below three times EBITDA. With net debt including leases of about S$20 million and EBITDA of S$80 million, Larkspur was far inside the limit. The note to watch was the term loan, because refinancing S$40 million in a downturn would cost more than refinancing it in a good year.
From your chosen company's notes, record the revenue policy, the most profitable segment, total lease liabilities and the next large debt maturity, each with its page number.
From your chosen company's notes, record the revenue policy, the most profitable segment, total lease liabilities and the next large debt maturity.
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