The
annual report is one of the most through analysis of a company
you will find. Most annual reports are filled with beautiful
pictures and testimonies from satisfied customers, but this
does not deter from the real purpose of the report, which
is to give an objective and through overview of the company.
The annual report is a valuable and necessary analysis tool
for both current and potential investors interested in measuring
value and risk of a company. The Securities and Exchange
Commission (SEC) requires companies to send investors an
annual report every year.
What do annual reports include?
- A
five-year comparison of selected financial data;
- A
consolidated Balance Sheet, an Income Statement,
a Cash Flow Statement, and a statement of changes
in stockholders'
equity for the past two years;
- A management discussion and
analysis (MD&A)
of results and changes over the last two years; and
- Notes
to the financial statements that describe accounting
policies as well as providing more detailed information
in such areas as taxes, pension plans, business segment
and
geographical breakdowns, related party transactions, and
future financial obligations.
Major aspects of the report an investor should review are
the-Income Statement, Cash Flow Statement, and Balance Sheet. Where should you begin your analysis and research with an
annual report? To start, look at:
- Sales,
earnings, and various profit margins (from the Income
Statement);
- Debt
levels and the composition of current assets (from
the Balance Sheet); and
- Actual
cash flow versus reported income (from the Cash Flow
and Income Statements).
The annual report is the single most complete and useful
analysis of a public company available. How do you acquire an annual report?
- Investors
holding individual stocks are automatically sent an annual
report of the companies they own shares in,
every year.
You
can call the toll-free number of investor relations department
of a company and request an annual report.
- You
can download an annual report from the website of
some companies.
- Edgar (SEC/Edgar), the financial
database of SEC filings, contains the required annual
SEC filings—the 10-K report—for
most U.S. companies.
The annual report is probably not only the most objective
view of a company you will obtain, but it is also contains
valuable information to help predict a companies future.
Lois Center-Shabazz is the founder of MsFinancialSavvy.com
and author of the 3-time award-winning personal finance book,
Let's Get Financial Savvy! ISBN #0971979502.
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