Report on the Fourth Congress of the European Federation of Financial Analysts Societies

Abstract

THE Fourth Congress of the European Federation of Financial Analysts Societies took place in the Dutch seaside resort of Noordwyk, September 14-17. It was attended by some 320 delegates from the seven national associations which comprise the Federation-England, Germany, France, Netherlands, Belgium, Switzerland and Spain-and observers from four other countries. A strong northwesterly wind blew most of the time and kept the delegates confined to the hotel until Friday afternoon. We were told that the wind is a perennial feature of Dutch seaside resorts and is partly responsible for the legendary diligence of Dutchmen. It undoubtedly contributed to the strong attendance at the meetings. It was a working Congress, but the work done during the Congress was exceeded by the work done in preparation for it. A substantial number of documents were distributed in advance of the meetings, some of them of considerable interest. The report on computer applications to security analysis, in particular, drew high praise. In addition, there were twice-daily bulletins giving, among other things, up-to-date prices from the world's stock markets. Simultaneous translation was provided in five languages, as befits the conduct of a major international conference. Each day of the Congress had its main theme. The first day was devoted to the work of the Permanent Commission on Standardization and Method which is seeking to establish a standard form of presentation for European company accounts. The second day dealt with the application of computers to financial analysis and portfolio management; on the third day there was a general debate on the challenging subject: Do Equities Afford a Hedge Against Inflation? In addition, there were a number of smaller discussion groups devoted to topics running from convertible bonds (from the point of view of the company and of the investors) and professional education of financial analysts to methods of estimating future profits. The Standardization Commission had been given as its term of reference: establish a form of presentation of the information given in company accounts suitable for use in investment analysis and standard on the European level. After some three years of study the Commission came up with a work sheet for reporting company accounts on a uniform basis together with a set of definitions for each item. The work sheet consists of a balance sheet; a financing table, i.e., a source and applications of funds derived directly from the comparison of this year's balance sheet with last year's; and a profit and loss statement. Altogether it contains some 100 headings and subheadings. It is intended to serve three main purposes: 1) to allow comparisons between companies of different nationalities; 2) to provide a prototype for statistical services; 3) to help companies in deciding what information to publish. It was also mentioned that the work sheets may be useful in training young financial analysts. The debate on the Commission's report was ably chaired by Mr. P. W. Freeman of England. The main impression which emerged was that the European analyst is faced with a very difficult task indeed. Each country has different customs and different legal requirements. In addition, each company has its own ideas about what the shareholders ought to be told. As a result, the analyst is provided with data which are not only heterogeneous but also very incomplete. To reduce them to a common denominator is well-nigh impossible. The work sheets, as they stand, are quite complicated and take a long time to complete; moreover, they cannot reveal anything that the management has deliberately left out of the published accounts -this is particularly true of subsidiaries which have not been properly consolidated. As a result, it is doubtful whether the scheme can effectively accomplish the first two of its aims. A comparison between unlikes can do more harm than good; and