A company's annual report hold valuable information for the prospective investor. If, said investor can manage to understand what they see in the annual report! Seriously, with confusing terms and huge calculations it seems as if these annual reports are meant to confuse the individual investor. Leaving you crying in the kitchen floor screaming for your broker. It's okay, pick yourself up! Here's how to read and annual report.
* Income Statement - How sucessful has the company been at making money?
In the income statement you'll see where the company makes it's money, by doing or selling whatever it is they do or sell. You'll see that a portion of the revenue is put towards paying their own expenses. What they're left with, their profit, is the "bottom line" on the income statement.
* Cash Flow Statement - How are hey paying for operations and growth?
Here's the company's money, the "bottom line" from the Income Statement becomes the "Cash Flow from Operations" here. You'll see the amount of money that came into the company. Cash Flow from Financing, here you can tell the company's health. Has the company created new stocks to sell? This lessens the value of stocks, that's bad for the shareholder! Are they buying back shares? That can mean the company is paying off debt. That's good for the shareholder! Cash Flow to Investing: we want to see a company grow, to expand their earnings. We want the company to be able to pay for this growth with earnings from Operations, without having to raise money by selling new stocks.
* Balance Sheet - What the company owns and owes (debt)
How much will the company pay or owe to Stock and Bond Investors?
Are you more of a visual learner? Click here to see how it all works!
