How to Read an Annual Report

Every publicly traded company is required by the SEC(Securities and Exchange Commission) to provide annual reports to it's shareholders, and the general public as well. These annual reports contain very important financial information, as well of summaries of the companies progress made by the CEO, board members, etc. I use annual reports to decide whether or not im going to buy stock in that company.

How to obtain an annual report - There are basically two ways to get an annual report from a company. The first way is to call the Investor Relations department of a company and asked to have an annual report be sent to you. They send the annual reports free of charge to you, and it would usually arrive in 4 to 5 business days. These annual reports look like magazines, and are very professionally prepared. Usually if you go to the website of the company you're researching, they will have a "Investor Relations" link, and then you can fill out an online form with your name and address to recieve an annual report.

The second way to get annual reports from a company is to go to The SEC's Website at http://www.sec.gov. If you click on "Search for Company Fillings" located under "Filling and Forms", you'll be taken to a webpage called "Search the EDGAR Database". On that webpage, click on "Companies & Other Filers". Then enter the name of the company you need an annual report form, and then click "Find Companies". Look for a report labeled "10-K". That will be their the companies annual reports. Now the reports on the SEC's website are in no way glamourus! They are just in basic text format, and can be very boring to read. But, they provide the same important information from the company.

Inside of the annual report, you will find many things that are useful in helping you decide whether or not to invest in that company. Here's what you'll find in just about every annual report:

Corporate Profile - This is just a small summary of the basic operations of the company, what the company does, etc.

Letter from the President - This is a letter written by the president or CEO of the company, and most of the time the letters talk about the financial successes of the year. This letter may also mention major contracts or partnerships the company has formed, and give a general analyzation of the companies revenues and sales. Be careful when reading the letter from the President, because the business could be running to the ground, but while reading the letter you may get the immpression that all is well!

Independent Auditors' Report - Before a company can distribute their annual report to the public, the financial information inside of the annual report must be checked for accuary so shareholders are not misled. That's the job of the independent auditor. They auditing firm will search for evidence that supports the financial information in the Income Statement, Balance Sheet, etc., and then will write a letter if all is well.

Income Statement - The income statement in the annual report shows the net income or net loss for that particular year. It also shows net sales, cost of goods sold, and the expenses of a company. Income statements from different years can be compared to see if the company is improving financially. I like to compare income statements from the past 5 years, to see if the net sales and net income of a company is increasing.

Balance Sheet - The balance sheet shows the business' assets, and liabilities. The assets are listed in order of liquidity. The quicker an asset can be converted to cash, the more liquid it is. That is why Cash is at the top of the list of assets, because it is the most liquid asset. Under assets you may see items such as Accounts Recieveable (the amount of money that's owed to the company), Property and Equipment, and Other Invesments. In the list of Liabilities, you'll see items such as Accounts Payable (The amount the company owes to other businesses), Income Taxes Payable, and Long-term Debt.

Cash Flow Statement - The cash flow statement shows how the money the business makes, is moving in the business. The cash flow statement also shows if the business was able to increase their cash on hand during the year or not.

Risks - Usually in the back of the annual report, you'll find the risk that are associated with the business. Reading all the types of things that can affect the business is depressing, especially if you own stock in that company. But, to get a good idea of what can affect a business, reading the risks section of the annual report is the best way to go.

Michael Press is an investor and teenage entrepreneur. He currently owns and operates PassiveIncomeInfo.com, a free website with articles about how to build wealth. He also writes for and distributes the Creating Wealth E-zine.

New investor email lists and leads posted - including active real ... PR Web (press release), WA - Aug 20, 2008 ... finance executives, owners of tax free investments, Canadian investment responders, individuals interested in stocks, mutual funds, rare coins, ...

Investing early is best strategy Miramichi Leader, Canada - Aug 19, 2008 You can invest in equity in many ways: stocks, mutual funds, indexes or private companies. Yes, there are risks, but there is also the potential for greater ...

SEC Weighs Overhaul of 'Index' Annuities Wall Street Journal - Aug 16, 2008 But the SEC wants indexed annuities to be considered "securities," just like stocks, mutual funds and even variable annuities. ...

But spend wisely, says financial planner Belleville Intelligencer, Canada - Aug 19, 2008 "You are insulating yourself from the adversity of the economy if you invest in stocks, mutual funds and, of course, an emergency savings account. ...

Money Tip: ETFs stable in turbulent markets Baxter Bulletin, AR - Jul 25, 2008 Trading in exchange-traded funds has been stable and strong despite recent troubles in financial markets. Like mutual funds, ETFs are single investments ...

Ibbotson Selected by ING Financial Advisers to Create Model ... MarketWatch - Aug 13, 2008 Morningstar provides data on more than 280000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 18 ...

Easy-to-Use Solution Allows Retirement Plans to Offer Allocation ... MarketWatch - Aug 6, 2008 Morningstar provides data on more than 270000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 18 ...

Banking crisis a surprise most saw coming The Age, Australia - Aug 5, 2008 And, as the FDIC site explains, it does not insure investments held in banks such as bonds, stocks, mutual funds, life insurance policies, or municipal ...

Morningstar Announces Two New Fund Categories, One Broad Asset Class MarketWatch - Aug 5, 2008 Morningstar provides data on more than 280000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 18 ...

Los Angeles Times

Should you buy a home now? Los Angeles Times, CA - Aug 3, 2008 But renters can take the money they would have spent on a down payment and invest it in stocks, mutual funds or other investments (20% down on the ...