Investor Junkie
MENUMENU
  • Start Investing
    • HOW TO GET STARTED INVESTING

      New here? Just starting as an Investor?

      If you're a new investor and visiting Investor Junkie for the first time, then this is what you need to get started.

    • GETTING STARTED STEPS

      • Get Rid of Consumer Debt
      • Start ​​​​​​​Investing Now
      • Open a Retirement Account
      • Create an Asset Allocation
      • Minimize Taxes
      • Reduce Fees & ​​​​​​​Fund Expenses
      • Start a ​​​​​​​Side Hustle
      • Protect ​​​​​​​Your ASSets
      • Next Steps
  • Reviews
      • Recommended Services

      • Personal Capital
      • Betterment
      • YNAB
      • Acorns
      • Fidelity Investments
      • Ally Invest
    • Robo Advisors

      • Betterment
      • Wealthfront
      • Wealthsimple
      • Blooom
      • More Reviews

      Stock brokers

      • Ally Invest
      • E*TRADE
      • Merrill Edge
      • TD Ameritrade
      • More Reviews
    • Microsavings

      • Acorns
      • Digit
      • Stash Invest
      • Qapital
      • More Reviews

      Banking

      • Ally Bank
      • CIT Bank
      • Chime
      • EverBank
      • More Reviews
    • Personal Finance

      • Mint
      • Quicken
      • Personal Capital
      • YNAB
      • More Reviews

      Accounting

      • FreshBooks
      • QuickBooks
      • Sage Business Cloud Accounting
      • Wave
      • More Reviews
    • Real Estate

      • Fundrise
      • Realty Mogul
      • RealtyShares
      • PeerStreet
      • More Reviews

      Peer-to-Peer Lending

      • Lending Club
      • Prosper
      • Wunder Capital
      • YieldStreet
      • More Reviews
    • Investment Research

      • Barron’s
      • Morningstar
      • Stansberry Research
      • YCharts
      • More Reviews

      Financial Books

      • Rich Dad, Poor Dad
      • Money Master The Game
      • The Millionaire Next Door
      • The Best Finance Books
      • More Reviews
  • Compare
    • Robo Advisors

      • Betterment vs. Wealthfront
      • Betterment vs. Vanguard
      • Wealthfront vs. Vanguard
      • Wealthfront vs. Wealthsimple
      • Compare Others
    • Personal Finance

      • Quicken vs. Mint
      • Mint vs. Personal Capital
      • Mint vs. YNAB
      • Quicken vs. Personal Capital
      • Compare Others
    • Stock Brokers

      • Schwab vs. Fidelity
      • E*TRADE vs. TD Ameritrade
      • E*TRADE vs. Robinhood
      • Fidelity vs. Vanguard
      • Compare Others
    • Real Estate

      • Fundrise vs. Realty Mogul
      • Realty Mogul vs. RealtyShares
      • Fundrise vs. Rich Uncles
      • LendingHome vs. PeerStreet
      • Compare Others
    • Banking

      • Best Online Savings Account
      • Best Online CD Rates
      • Best Jumbo CD Rates
    • Peer-to-Peer Lending

      • Lending Club vs. Prosper

      Microsavings

      • Acorns vs. Stash
  • Learn
      • All Articles
      • Investing SecretsInvesting Secrets
      • The Mint ManualThe Mint Manual
      • SEE ALL ARTICLES
    • Budgeting

      • How Much Do I Need to Save per Month
      • What is Zero-Based Budgeting?
      • 50/30/20 Budgeting Doesn’t Work
      • Why I’ve Switched to Personal Capital
      • See All

      Robo Advisors

      • Robo-Advisor Overview
      • True Costs of the Robo-Advisors
      • Robo-Advisors vs. Target Date Funds
      • Robo-Advisors vs. Microsavings
      • What is Tax-Loss Harvesting
      • See All
    • Investing

      • How to Choose an Online Broker
      • How to Transfer to a New Broker
      • Invest Your First $1,000
      • Who Offers a Virtual Trading Account?
      • See All

      Real Estate

      • Investing in Real Estate
      • 3 Steps to Get Started as a Real Estate Investor
      • You’re a Fool to Prepay Your Mortgage
      • How to Use Your 401(K) as a Down Payment
      • Tax Lien Investing
      • See All
    • Retirement

      • How to Rollover a 401(K)
      • How to Maximize Your 401(k)
      • Target Date Funds Comparison
      • Roth IRA vs. Traditional IRA
      • See All

      Taxes

      • 2017 Retirement Plan Contribution Limits
      • Tax-Efficient Investing
      • Tax-Loss Harvesting
      • How to Pay $0 Tax on a Six-Figure Income
      • The Best Tax Software for Investors
      • See All
  • Promotions
    • Featured promotion
      Betterment

      Betterment

      BEST OFFER
      Up to one year managed free initial deposit

      Learn More
    • Stock Brokers

      • Ally Invest
      • E*TRADE
      • Firstrade
      • Merrill Edge
      • TD Ameritrade

      Best IRA Promotions

      Free Stock Trading

    • Robo Advisors

      • Betterment
      • Blooom
      • Wealthfront
      • Wealthsimple
      • Ellevest
    • Personal Finance

      • Quicken
      • QuickBooks
      • YNAB
    • Microsavings

      • Rize
      • Stash Invest
      • Acorns
    • Other

      • Lending Club
      • Roofstock
      • RealtyShares
      • YCharts
      • Personal Capital
Home > Investing > Why Annual Reports Are Required Reading for Smart Investors

Why Annual Reports Are Required Reading for Smart Investors

Given that we live in a time where information is largely fed to us by third parties, many investors might pass up an important piece of required reading, known as the annual report. Reviewing a printed booklet can seem so “old school” in this day of rapid fire, online information — maybe that’s the point.

But there are some benefits: reading it forces you to slow down and spend some time analyzing information that is highly relevant to securities you are investing your hard-earned money in.

If you aren’t a regular reader of annual reports, you need to become one. There’s information in them that isn’t always disclosed by the financial news analysts who recommend one stock over another.

What is the purpose of an annual report?

An annual report is a standardized document that is provided by most publicly traded companies. If you have the ability to read and interpret one company’s annual report, you will be able to do the same with others.

The annual report is a document that is prepared by the company, and it is written specifically for shareholders and prospective investors in the company. It provides information on the company’s performance in the most recent fiscal year, it discloses specific issues the company is facing, and gives some idea of what the future plans are.

Annual reports are available free of charge, since they are provided by the company specifically to inform and attract investors to their stock. You can get a copy of the report by calling or emailing the company (typically the shareholders services department), but they are usually readily available for download from the company’s website.

Note: Another part of required reading is the “10Q”, which is an annual report that the company is required to file with the Securities and Exchange Commission (SEC).

What you will find in an annual report?

Annual reports are typically presented in nine parts:

  1. Letter from the chairman
  2. Sales and marketing plan
  3. A ten-year summary of financial results
  4. Management discussion and analysis
  5. CPA opinion letter
  6. Financial statements
  7. Description of subsidiaries, brands, and addresses
  8. A list of directors and officers
  9. The company’s stock price history

The importance of each of the above varies in importance. Some items (1 and 2) are what we might think of as promotional material. They’re heavy on opinion (usually positive in tone), but normally light on usable content. Others are history reports (3 and 9), and still others (6 and 7) are mostly lists.

The Management Discussion and Analysis (#4) bears close attention. This is where management discloses significant trends and challenges affecting both the company and the industry. It can help you to understand how the company is dealing with significant issues.

The CPA Opinion Letter (#5) is where the CPA firm who prepared the company’s financial statements expresses an opinion on them. This document can go either way — it can either reveal significant information that should never be ignored, or it can be more of a form letter.

If the opinion letter gives an “unqualified” or “clean” opinion (there are no exceptions) then it is primarily a cover sheet for the financials. But if it lists departures and references exceptions, you will need to get more information. To get an accurate analysis of the disclosures, you should speak with a CPA, or do some extra research on the web.

Financial statements are the most important annual reports.

The financial statements are the most important disclosures in an annual report. Primary among these are the income statement and balance sheet. There will be other statements as well — mostly subsidiary statements and schedules — but these are the big two, and the ones that you should pay the closest attention.

It’s important that you know how to read a financial statement so that you can properly interpret the information presented in these two statements. There could be significant information — positive or negative — contained in the numbers that isn’t showing up in any of the written summaries.

After all the analysts recommendations for or against a particular stock, you should never buy a stock — or pass on buying one — until you have looked at the annual report, and the financial statements in particular. And even if it’s a stock you already hold in your portfolio, you should still be combing through it’s annual report for as long as you own it.

Do you make it a practice to read and review annual reports?

Photo courtesy of Kittikun and FreeDigitalPhotos.net

Share8
Tweet8
Share2
Reddit
Email

Author: Kevin Mercadante
Updated: March 10, 2016
Category: Investing
Tags: investment research

So You Want to Learn About Investing?

Sign up for our 7-day email series (it's free) and learn the building blocks you need to start investing today.
Signup to Learn Investing

Suggested For You

  • financial statement

    How to Read a Financial Statement

    If you want to be a successful investor, there’s one absolutely critical skill you need to acquire, and that is the ability to read a financial statement. This is particularly important if you trade individuals stocks. […]

  • business owner

    Why You Should Buy Stocks and Bonds Like a Business Owner

    If you’re buying a business — one that would represent your primary occupation — you’d probably do an FBI number on that business to find out all you can about it, before sinking any of your hard earned money into it, wouldn’t you? […]

  • evaluate companies

    How to Evaluate Companies Before Purchasing Their Stock

    Investing is the midpoint between gambling and mattress stuffing. An investment is something that has a positive expected future outcome based on evidence. While investors cannot know everything about any given investment — predicting the future isn’t easy — investors should know enough to have reasonable forecasts about the future. […]

  • Business Owners

    How to Create a Successful Business Plan

    When I started my business, I didn’t even consider it a business. All I knew is that I needed to pay rent and eat, and writing helped me do that. As matters progressed, however, I realized that I had a business — and that a plan might be a good idea. […]

  • Trustworthy advisors

    Why You Need to Assemble Your Own Panel of Trustworthy Advisors

    It is impossible for each of us to be experts in everything we face in life — after all, we have a “day job” and all the complications it entails. For nearly everything else, especially investing, we need help. […]

Comments

Notify of



wpDiscuz

Recent Investing Articles

What Investment Can Get Me Rich Quick? How Teens Can Start Investing Right Now Investing As an Expat – What You Need to Know What Is Short Selling Stocks? Should I Do It? What Is Socially Responsible Investing?

Popular Articles

  • Personal Capital Review
  • Betterment Review
  • Betterment vs. Wealthfront
  • Acorns vs. Stash
  • Wealthfront Review
  • Overview of Robo-Advisors
  • Aly Invest Review
  • Mint Review
  • Quicken 2018 Review
  • Stash Invest Review
  • YNAB Review
  • Acorns Review
  • TD Ameritrade Promotional Codes

Investor Junkie

Helping make finance easy. Investor Junkie is your shortcut to financial freedom. We know that managing finances is not easy. We analyze and compare tools to help you make the best decisions for your personal financial situation.

© 2018 Empowering Media, Inc. All Rights Reserved
Subscribe to the Investor Junkie Newsletter
  • About
  • Careers
  • Contact
  • Advertise
  • Privacy
  • Disclaimer

Stay Connected to Investor Junkie

  • subscribe unsubscribe

Investor Junkie is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that investment markets have inherent risks, and past performance does not assure future results. Investor Junkie has advertising relationships with some of the offers listed on this website. Investor Junkie does attempt to take a reasonable and good faith approach to maintaining objectivity towards providing referrals that are in the best interest of readers. Investor Junkie strives to keep its information accurate and up to date. The information on Investor Junkie could be different from what you find when visiting a third-party website. All products are presented without warranty. For more information, please read our full disclaimer.