Fundamental Analysis
The Quarterly
and Annual Reports
We find most historical data in the annual and quarterly
reports released by the management. These can be found over
the Internet or in physical form, which is usually a glossy
and colorful publication.
Financial statements are required by law and must include
a balance sheet, an income statement, a statement of cash
flows, an auditor's report, and a relatively detailed description
of the company's operations and prospects for the upcoming
year.
The following information is presented in most financial reports,
note that the order in which these are presented might vary:
- Summary of the previous year.
- Information about the company in
general, its history, products and line of business.
- Letter to shareholders from the
President or the CEO.
- Auditor's report telling you that
the results are accurate.
- An in-depth discussion about the
financial results and other factors within the business.
- The complete set of financial statements
(balance sheet, income statement, statement of retained
earnings, and cash flow statement)
- Notes to the Financial Statements.
- Other information on the company's
management, officers, offices, new locations, etc.
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How you read the financial statements really depends on who
you are and what your interest in the company is. Management,
creditors/lenders, partners, and investors utilize financial
statements. Each group is interested in different things.
For example, an investor might assess profitability, growth,
stability, and the rate of dividends. On the other hand, a
creditor is much more interested in the amount of debt that
a company currently has and whether it has the ability to
make repayments.
Let's take a tour through some of the
most important sections of financial statements, looking more
closely at what each section means.
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