Part#1. Letter From the Chairman: The letter from the chairman of the board is the
traditional place for a companys top management team to explain what a great job it did
during the preceding year and to lay out the companys goals and strategies for the
future. The letter also is a great place to find apologies for problems that occurred during
the year, which may or may not have been solved. Oops!
Part#2. Sales and Marketing: This section contains complete information about a
companys products and services, as well as descriptions of its major divisions and
groups and what they do. When reading this section, you should be able to figure out
which products are most important to a company and which divisions or groups are most
critical to the companys success.
0Part#3. Ten-year Summary of Financial Results: If the company is at least ten years
old, its annual report contains a presentation of financial results during that period of
time. This section is a terrific place to look for trends in growth (or non-growth) of
revenues and profit and other leading indicators of a companys financial success
.
Part#4. Management Discussion and Analysis [MDA]: This section is the place where
a companys management team has the opportunity to present a candid discussion of
significant financial trends within the company during the past couple years.
Part#5. Letter of CPA Opinion: To be considered reliable, a companys financial
statements have to be reviewed and audited for accuracy by a Certified
Public Accountant (CPA). In this letter, a CPA firm states any qualifications that it has
with the companys financial statements. These statements can have great bearing on
the reliability of the data or of managements assessment of it.
Part#6. Financial Statements: Financial statements are the bread and butter of the
annual report. This section is where a company presents its financial performance data.
At a minimum, expect to see an income statement, a balance sheet, and a cash-flow
statement. Be sure to watch for footnotes to the financial statements and read them
carefully. You often find valuable information about an organizations structure and
financial status that hasnt been publicized elsewhere in the report. For example, you
may notice information on a management reorganization or details on a bad debt that
was written off by the company.
Part#7. Subsidiaries, Brands, and Addresses: Here you find listings of company
locations domestic and foreign as well as contact information, brand names, and
product lines.
Part#8. List of Directors and Officers: Corporations typically have boards of directors
senior businesspeople from both inside and outside the organizations to help guide
them and to provide a broader view of markets and business environments than whats
seen by internal managers. Officers include the president, chief executive officer (CEO),
vice presidents, chief financial officer (CFO), and so forth.
Part#9. Stock Price History: This section gives a brief history of the companys stock
prices and dividends, showing upward and downward trends over time. Included is
information on a companys stock symbol and the listing stock exchange for example,
the New York Stock Exchange (NYSE) or NASDAQ.
If you want to read a companys annual report but cant find it, you can go online. With the help of
online search engines, finding a companys annual report is easier than ever. Many companies
also have Investor Relations pages on their Web sites where you can find copies of annual
reports and quarterly filings with the Securities and Exchange Commission. For example: in
2006, General Electric created an interactive annual report on its site. You can check it out
at [here]. The site even features a video of the Chairman of the Board and the CEO talking about
how theyre going to build a better company.
Review the companys financial statements and look for trends in profitability,
growth, stability, and dividends.
Read the report thoroughly to pick out hints that the company is poised for
explosive growth or on the brink of disaster. Places to look for such hints include
the letter from the chairman, the sales and marketing section, and the management
discussion and analysis. Of course, it also pays to keep an eye on the company through
the business press and analyst reports. (For some tips on recognizing an impending
disaster, see the upcoming sidebar).
Carefully read the letter of CPA opinion. Be sure that the firm agrees that the
companys financial statements are an accurate portrayal of its financial reality.
Carefully read any footnotes to the financial statements. These footnotes often
contain information about company assumptions that can be critical to a full
understanding of the financial statements.