THE WHOLE PICTURE; COMPANIES' ANNUAL REPORTS HELP SPOT PUREBREDS, MUTTS.Byline: Deborah Adamson Daily News Staff Writer Proper research of a company can spell the difference between investment success and failure. A good start is learning to decipher Same as decrypt. the annual report. Annual reports are booklets given to shareholders by publicly held companies. They give an account of the company's finances, operations and plans. They tend to have a glossy cover, with a flattering flat·ter 1 v. flat·tered, flat·ter·ing, flat·ters v.tr. 1. To compliment excessively and often insincerely, especially in order to win favor. 2. photo of the chairman, chief executive officer or the company's product. There's a letter from the chairman, a section on management's discussion of finances and operations, and the financial statement. Read the chairman's letter and admire the pretty art in the report. But don't be overly influenced by them. ``A lot of times, annual reports can be misleading. You can see beautiful pictures, but there's nothing going on in the company,'' said Michael Saunders, vice president of investments at PaineWebber in Century City. However, the financial statement and management's discussion of operations and finances tell a better story. Also, check for contracts received by the company, Saunders added. It's an indication of future income. Finally, don't limit your research to the annual report, he said. Check out various financial publications, from your local newspaper to Standard & Poor's stock reports, Moody's, Value Line and other publications. On the Internet, find the company's financial filings with the Securities and Exchange Commission - www.sec.gov. It's listed in the SEC's Edgar database. Here are key elements to consider in an annual report, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Brian Nowicki, an academic associate at the College for Financial Planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against in Denver. Net income: Make sure earnings keep growing. Compare the growth rate to past performance, those of similar firms in its industry and analysts' estimates. Income from continued operations: Provides a better snapshot of company performance than net income, since it excludes one-time charges. This figure should keep increasing. Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses : This shows whether the company is making money from the business. Make sure the figure is positive and either sustains its level year after year or increases. Cash flow from investing activities Cash Flow From Investing Activities An item on the cash flow statement that reports the aggregate change in a company's cash position resulting from any gains (or losses) from investments in the financial markets and operating subsidiaries, and changes resulting from amounts spent : This shows how much the company spent to grow the business by buying equipment, property and others. Don't be alarmed if it's negative, since investments could help the company in the future. However, if this figure is positive and keeps growing, that could mean the company is not investing enough in its business. Cash flow from financing activities Cash Flow from Financing Activities A category in the cash flow statement that accounts for external activities such as issuing cash dividends, adding or changing loans, or issuing and selling more stock. : This shows how much the company borrows. If it's positive and increases over the years, then management is stepping up borrowing. Combined with a negative cash flow from operations, the company might be borrowing money to shore up an unprofitable business. Revenues or sales: Make sure it's growing yearly. If not, find out why. Dividends: A portion of net income that is given back to shareholders. Look for changes in dividend levels. If it decreases or stops, that's a clue that something is wrong. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , a rising dividend can be a good sign. High-growth companies tend not to pay dividends because they want to plow plow or plough, agricultural implement used to cut furrows in and turn up the soil, preparing it for planting. The plow is generally considered the most important tillage tool. all earnings back into the business. Management's discussion: Find out the company's plan for future growth. Check old annual reports to determine whether management had been true to its word. Footnotes to the financial statements: Find out whether there are any lawsuits or legal judgments that might hurt the company. CAPTION(S): photo Photo: no caption (Walt Disney Noun 1. Walt Disney - United States film maker who pioneered animated cartoons and created such characters as Mickey Mouse and Donald Duck; founded Disneyland (1901-1966) Disney, Walter Elias Disney Company annual report) |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion