An annual report is a document that summarizes a company's performance.These reports are read by shareholders and investors, but they are also of interest to future lenders, people considering future employment with a company, and business students.An annual report provides an overview of the company, familiarizing you with company leadership, and reading financial information.
Step 1: Determine what kind of annual report you want.
The 10-K required by the Securities and Exchange Commission could be an official document for the annual report.Annual reports usually have the same basic components, including information about management and directors, financial data, projections on future growth, and market analysis.
Step 2: You can get a company's annual report.
The annual report should be mailed to you if you own stock in a publicly traded company.The company's annual report can be found on its official website.If you want to read the annual report of a private company, you need to get permission from the company in order to do so.Private company annual reports are not usually held to the same standards as public companies.
Step 3: You have to get a 10-K.
All public companies have to file a 10-K every year.You can search for and download a public company's annual report on the SEC website.The annual report of the company you want to read can be found at http://www.sec.gov/edgar.htm.
Step 4: You can read the letter from the chairperson.
The opening section of an annual report includes a letter from the chairperson of the Board of Directors.A broad overview of the company's fortunes over the past year is what it typically gives.Problems and issues that arose may be addressed by the chairperson, as well as what has been or will be done to solve them.Future goals should be discussed in the letter.Specific, clear plans for the company's future are what you should look for.There is an analysis of the company's gains and losses over the preceding year in the letter from the chairperson.
Step 5: The business description should be read.
If you want to learn more about the company and what it does, read the business description.The company's offerings and industry will be described.Brief descriptions of their business sectors, including main products and services, sources of materials, and the status of new products will be included.If you're not familiar with the company, this should be your starting point.Industry trends may be included in this section.
Step 6: There are directors and officers of the company.
Short biographies of the individuals sitting on the board and company officers could be given in this section.The section is intended to celebrate the hard work of the company's personnel as well as inspire confidence in investors and shareholders.Take the current year's list of directors and officers to previous years.It could be an indication of continuing problems if the list changes a lot.
Step 7: Take a look at the ten-year summary.
The ten-year summary compares where the company is financially compared to where it was a decade ago.The section will give you a good idea of what the long-term growth trends have been, as well as where the company might be headed in the future.The report might include a section on long-term growth if the company has not been around for a decade.
Step 8: Take a look at the risk factors.
One of the differences between the regular shareholder's report and the official government annual report is that the latter requires a risk assessment.The factors addressed in the risk assessment give information about how financial projections might differ from actual results if certain conditions are not met.Standard risks include an inability to maintain brand value and the threat of legal proceedings.The risks are specific to the company.Changing technology, levels of oil and gas reserves, and corporate assumptions about energy consumption are some of the risk factors that may be listed by an Oil and Gas company.Risk factors show how companies arrive at their financial projections.Risk factors are designed to protect the company in the event they occur.You have to determine the likelihood of a negative event happening and how it will affect the company.
Step 9: The management discussion should be read.
The management discussion and analysis section in an annual report gives the management team an opportunity to voice their views on the company's financial trends.They will discuss the company's performance over the past year as well as where it is headed in the future.Management discussion will usually address the company's debt and equity structure in addition to financial indicators.Don't take the management discussion at face value.The opinions presented in the management discussion portion may not be accurate if the company doesn't have competent management.Independent CPAs do not vet the management statements.
Step 10: The sales and marketing section should be reviewed.
The products and services the company provides are discussed in this section.You will be able to understand what products and services the company is handling well after reading this part of the report.Information about company slogans and why they work to promote the brand could be contained in this section.The key concepts associated with the product or service should be explained in the sales and marketing section.The main themes of a car maker's marketing campaign might be youth, speed, and adventure.
Step 11: You can read about the company's holdings.
Where the company has offices or plants will be listed here.The section will show you more about the various locations where the company does business and what its holdings look like.This is where the specific products a company produces or develops will be described.The company's major divisions and holdings will be reviewed.For instance, a company like Disney might talk about the sales and performance of its brands such as Disney, Pixar, and Lucasfilm, all of which are under its corporate umbrella.
Step 12: Read the opinion of a certified public accountant.
An independent CPA analyzes the company's financial status in the CPA opinion portion of the document.The annual report is a less reliable document without a CPA opinion.The opinion of the CPA is based on a review of tangible assets and documents like purchase orders and contracts.Information from banks, customers, and suppliers will be collected by the person.Generally Accepted Accounting Procedures (US GAAP) is a set of accounting practices that all public companies in the United States must adhere to.
Step 13: Look at the financial statements.
The financial statement of an annual report is the most important part of the document.The company's financial performance statistics, balance sheet, income statements, and cash flow statement are included.To get a full picture, you need to look at each company.How much money the company took in will be shown in the income statement.Both investment income and income from sales of products and services will be included here, as well as expenses incurred to reduce the revenues within the same period.The cash flow statement will show the company's starting cash balances, sources and uses of cash, and the ending cash balance.It could show that the company is investing in new plants, raw materials, property, or personnel.The owner's equity is the difference between assets and liabilities on the balance sheet.The footnotes in the financial statement portion of the report may contain additional information about the company's operations and properties.
Step 14: The stock price history should be reviewed.
The stock price history shows how the company's stock value has changed over the course of a year.It will be presented as a graph, along with an analysis of the stock's trends.The stock symbol and stock exchange listing of the company are listed in this section.The company's stock price can be compared with others in its industry.Look for similarities and differences.The variation in the stock price of the company may be a result of mismanagement.
Step 15: Look out for companies that change their messages.
If a company is devoted to creating healthy customers one year and selling soda and candy the next, something may be wrong with its management and leadership.You can get a good idea of the company's values and vision by reading the opening statement.Companies that move too far from their successful market niche may be in trouble.If a company takes on an entirely different target audience or seems to be overextending itself, it should be avoided.A company that says it wants to make the best computers in a year is probably not going to do that.
Step 16: Change of accounting practices can be dangerous.
If a company suddenly takes a large impairment charge, you should be concerned about why the company's goodwill has diminished.A decline in inventory could be a sign that the company is overpaying for personnel or materials.
Step 17: The proxy statement should be read.
An attachment to the official 10-K form shows how much the company's executives are being paid.Information relevant to the company's owners who are about to vote is given.
Step 18: Don't look for adjusted earnings.
There are extraordinary misfortunes, special events, or extraordinary circumstances that can affect adjusted earnings.Review previous reports to confirm that the event was extraordinary.The company has run aground if there is a large gap between adjusted and actual earnings.Check the company's expectations against reality.If a company's annual report states an expectation to grow by 10% in the next year but instead loses 5% of its value over the course of the year, finding an answer for discrepancies as they can be caused by a variety of events, including stock fraud.