Reporting Season: What I look for in Annual Reports

Good morning, Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

August.

Annual reporting season.

Analysts are in their dens…

Scrambling to read 100-page documents and distil the “key takeaways” into a couple of paragraphs.

Some of these reports are dead boring.

But if you understand them… they can give you a HUGE edge with your investments.

Because annual reports shape the market expectations going into the next financial year.

… and if you know what the expectations are, you can evaluate whether the company meets or beats them.

(Sometimes even before the market realises).

… which is your edge.

With annual reports, there shouldn’t be any surprises with the headline number.

Companies put out guidance on forecast revenues.

Listing Rule 3.1 requires immediate disclosure whenever there is a material variance between the guidance and the result (when it comes to financial performance).

Generally, this is anything above 10%.

So, the market should already know any expectations “beats” BEFORE the annual reports come out.

But the annual reports are still important for evaluating and resetting your expectations for the stock in the year ahead.

… and some extra details that might help you make some decisions.

This is what I mainly look out for:

A bit of accounting 101 in today’s newsletter.

As I said.

It’s dead boring.

But worth understanding to build out your edge.

But first…

OncoSil Medical (ASX: OSL) receives FDA Humanitarian Device Exemption approval for its OncoSil™ device to treat distal cholangiocarcinoma. (OSL)

🪑 Big milestone. Well done.

Mesoblast (ASX: MSB) completes treatment of 350 patients in its pivotal Phase 3 trial for rexlemestrocel-L targeting chronic low back pain. (MSB)

🪑 Recruitment for this one feels like it moved quickly. The benefits of self-funding trials.

Top-line results expected in mid-2027

Dimerix (ASX: DXB) assumes US IND sponsorship for DMX-652, an acute kidney infection treatment. (DXB)

🪑 Milestone ticked. Phase 2 clinical trial set for the second half of 2026.

Chimeric Therapeutics (ASX: CHM) enters a trading halt ahead of announcing results from its CDH17 clinical trial. (CHM, held)

🪑 This should be good! 🍿

Radiopharm Theranostics (ASX: RAD) is set to meet with the U.S. FDA on October 1st to align on Phase 3 trial design for RAD101. (RAD)

🪑 Pencil it in. October 1st for the end-of-Phase 2 meeting. This is where RAD will get alignment on Phase 3 trial design.

Tissue Repair Limited (ASX: TRP) announces a General Meeting to consider delisting from the ASX. (TRP)

🪑 I wouldn’t normally put in a notice of meeting as an announcement, but this one is interesting to watch.

Interestingly, the company is also doing a “buy-back” of $1M at $0.13 at a premium (stock is trading at $0.085 right now), CONTINGENT on delisting.

No delisting, no buyback.

It’s a bit of an incentive for the small shareholders to vote in favour.

(Also a potential small arbitrage trade if you’re game and want to go through the rigmarole of filling out the buy-back form).

Australian Clinical Labs (ASX: ACL) reports FY26 revenue of A$735.8M, down 0.7%, with statutory profit down 26.9% to $23.7M but underlying profit up 4.6% to $35.2M, and declares a final dividend of 9.25c per share. (ACL)

🪑 Underlying = excludes the impact of non-recurring items.

So they were profitable… if you squint.

Doctor Care Anywhere (ASX: DOC) reports H1 2026 revenues of £20.4M (up 6% on pcp) and EBITDA of £2.6m (up 27% on pcp). (DOC)

August is the annual reporting season.

Companies release their annual reports, financial results, and investor presentations.

It is also a super busy time for analysts, with desk notes, quick opinions, and 100-page documents all expected.

At a headline level, there is often not much that is new…

We will largely know the unaudited revenue numbers for many of these companies.

But reporting season provides a good opportunity to stop and think.

Do your expectations move UP or DOWN?

Where does the blue line fit?

Expectations are only one half of the equation.

The company has to deliver.

(that’s what the next 12 months is about)

Coming into an annual report cold, without understanding the context or the expectations, means you will probably have no idea what to make of it.

So, for me, reporting season is about building on my understanding of existing investments…

The ones that I know and look at every day…

Here are the key things that I look at in company annual reports:

A bit of Accounting 101 in today’s article.

(Dead boring but super important… if you take the time to understand this stuff, it gives you a big edge over others that trade the markets)

So, what is revenue?

Revenue is the total money a business makes from selling goods or services, BEFORE paying any costs.

The “headline” number.

For “growth” stocks, we want to see this revenue number going up year over year.

… And the shape of the revenue to be booked as annual recurring revenue.

Annual recurring revenue is the annualised value of a company’s recurring subscriptions or contracts.

It is revenue that should keep coming in, as long as customers renew and do not cancel.

Think about a Netflix subscription.

Netflix does not need to sell the entire service to you again every month.

The subscription continues until you decide to cancel.

That is the attraction of recurring revenue.

While headline revenue numbers might be similar across companies, those with a higher portion booked as “ARR” will be valued at a higher multiple.

Let’s use two companies as an example.

This is Catapult Sports (ASX: CAT). They sell tracking equipment to elite sports teams; in their annual report, you can see most of the revenue is booked to “SaaS” (software as a service):

CAT earned A$200 million in FY26 and trades at a $1.1 billion valuation, on a ~5.5x revenue multiple.

For example, Austco Healthcare (ASX: AHC) sells nurse call products to aged care facilities.

They did $81 million in revenue last year and trade on a market cap of $86 million.

Effectively a 1x multiple.

Most of Austco’s revenue came from equipment sales and installations, rather than recurring software and maintenance agreements.

That revenue can still be valuable.

But the market will generally pay more for revenue that is recurring, high-margin, and growing quickly.

So the shape of the revenue matters, even more than the headline number.

Questions to ask:

Is it high-growth revenue? 

Is it one-off revenue?

Is the revenue growing or stagnant?

Expenses are all of the costs associated with running the business.

These are deducted from revenues, along with other income and costs, to get the net profit (or loss) for the year.

Another concept to understand is gross margin.

Gross margin = the percentage of total sales revenue a company keeps after paying the direct costs of making its products or providing its services.

Companies that operate with high gross margins tend to be easier to scale profitably.

(Like Google or Amazon)

Low-gross-margin businesses generally need much higher sales volumes to generate the same level of profit.

(Like Coles or Woolworths)

What about no-revenue businesses?

Most early-stage drug developers and many medical device companies are pre-revenue.

Which means that it is important to look closely at the expense numbers to work out whether what was paid for the year is reasonable.

This is based on the activity and growth of the technology in the business.

NOT the revenue.

(Because there is none)

This is very company-specific.

Stocks that are pre-commercialisation should generally have a large proportion of their expenses recorded as Research and Development.

Based on the business's activity over the 12 months, YOU can work out whether you think the expense spend was reasonable.

Questions to ask:

What did the company actually achieve with the money?

Did you get good bang for your buck?

The balance sheet highlights the company's assets and liabilities.

Assets = things like cash, inventory, equipment. 

Things that the company owns and are valuable.

Liabilities = things like debt, services owed.

Things that the company owes.

Companies with a strong asset base (in particular cash) should be in a strong position going into the next financial year.

Companies with a lot of liabilities (particularly debt) may be in a weaker position going into the next financial year.

… Generally speaking.

Questions to ask:

How much cash do they have? 

Is this enough to last them the next 12 months?

Along with the annual report, some companies will provide guidance or management commentary for the next year.

This is accompanied by management commentary to reset expectations.

Companies can sometimes become the “boy who cried wolf”, where large contracts are expected to land in the upcoming financial year… but they’ve been saying that for years and years and years.

This can frustrate shareholders, and trust in management’s ability to deliver on forecasts is based on their track record.

As a rule of thumb, companies will like to UNDERPROMISE and OVERDELIVER, so they’ll be conservative in their forward guidance.

Companies want to be the chart on the left, rather than the one on the right.

You still need to sell the dream to keep shareholders interested.

But you don’t want to sell the dream too hard; otherwise, you may walk your shareholders into more disappointment.

... so it is a fine balance.

Companies in the early stages of commercial rollout might provide no guidance at all.

That means it is important to watch earnings calls to get a sense of what management expects going into the next year.

While you might not be able to get to every single earnings call…

The analysts covering the stocks will.

This will form the basis of the “market expectations” for the next 12 months.

Understanding why stocks move the way they do is all about understanding expectations and reality.

Earnings calls are ground zero.

Questions to ask:

What are the market expectations going into the next financial year?

One of my favourite parts of the Annual Report is the Rem Report.

In this section, the company outlines:

Again, these are very company-specific.

You’ll need to evaluate whether these are reasonable based on each management and board member's level of involvement in the company.

My general rule of thumb is that IF anyone in the company is paid over $1M in the year… it needs to have been a transformative year for the company to justify that spend.

Both in company development AND share price performance.

Also, does management own shares in the company?

If not… Why?

Questions to ask:

Does management own shares?

Is their pay reasonable?

Do their incentives align with me as a shareholder?

In every annual report, the company will publish the Top 20 Shareholders.

This takes a bit of time (and ChatGPT can help with this), but I stack up this year’s top 20 against last year’s top 20 and evaluate what’s changed:

Here is Catapult Sports again with an example:

Now, I wouldn’t do this for every stock.

BUT, for the companies that I follow closely, it gives me a very granular idea of who can move the markets.

If I see names that I know - funds or high-net-worth individuals building positions (or selling out) - it gives me a good idea of what level of buying support OR overhang there could be on the stock.

There is one important limitation.

Many of the names in a Top 20 are nominee or custody accounts.

Movement between nominee accounts does not necessarily mean an underlying shareholder bought or sold.

It can simply mean that the shares moved between brokers or custodians.

Questions to ask:

Who is new on the register?

Who sold down their position over the last 12 months?

Market movements reflect expectations and reality.

If the company beats expectations = the stock goes up.

(well, most of the time at least)

If the company fails to meet expectations = the stock goes down.

This can be why stocks go down on good news, if the market was expecting “great” and the company delivered “good”.

The annual report is an important document for one main reason.

Setting expectations.

It shouldn’t contain any new information or surprises that could genuinely move the market.

BUT, it does form the baseline for how the company will perceive the market going into the next year.

Some good nuggets of information, like the Rem Report and the Top 20 movements, can give valuable insight into why the company might move as it does.

I don’t read every annual report.

In fact, I ignore most of them.

BUT for the companies I do follow closely and have outsized positions in, they are valuable documents for understanding the company’s own expectations for the next financial year.

See you all tomorrow,

The Armchair Analyst.