Â At he end of each fiscal year most of the companies make Documents providing financial information such as blance sheets, income and cashflow statements and listing of company operations, calles annual reports. The information included in the report is compared to the information of previous years, looking also at the results. This is a criticial part of the dessision making process of the company for future company tactics and strategies. There are two types of annual reports depending on their contnents. The first is Annual report to the Securities and Exchange Comission, also known as form 10-k. The second is the shareholder annual report or corporate annual report. While the SEC annual report provides very detailed financial information, the sahreholder reoprt provides more generaized information pointing out the sales and the marketing information. To analyse the company's market people should look at the corporate reports, but the user of the information must have at least basic accounting knowedge, being familiar with company's statements, knowing where to find useful information and how to analyse it. Annual reports are created by the management of the company, so as the management is responsible for the accuracy of the information presented in the report. The information is used mainly by investors to examine the company's financial status and predict future direction. To make finding information in the annual reports easier, the annual reports have similar structure, and include obligatory parts such as Management's discussion and analysis of operating results.
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Annual reports basicly exhibit financial and statistical data, so as to process performance, markets and production. Putting together sales, earnings and other financial components for two or more years. This so called financial highlights have the purpose to determine the best approach to making the company's future strategy. However the annual reports are composed by the management, which purpose is to present the company in the best way, exaggerating some information and suppress other. So as good as the annual report is, it shouldn't be the only source of gathering information for the investors to evaluate the productive and financial performance of the company. Another major factors for the accuracy of the information extracted from the annual report is the ability to destinguish the important facts and skills of the extractor himself.
In order to get information from the annual report first must find one. All public-treaded companies are required to make annual reports aviable for the Securities and Exchange Comission (SEC), so to find there annual report is a possibility. Although most of the companies send digital coppies of their annual report via e-mails to users, or hard coppies via mailing, usually free of charge. And for imediate obtaining one can always download digital coppy directly from the company's website. Naturally the average annual report includes: letter to shareholders, Operational Overview (Management Discussion and Analysis), Auditor's report, consolidated financial statements-including balancesheets; income statements; cashflow statements, Notes to consolidated statements and some corporate information-for example: Board of directors, officers and shareholder information.
In order to gather the required information one must simply folow the steps of analysing the annual report. First one must check the last page of the report. It should be written on it: "Report of Independent Registered Public Accounting Firm" or "Auditor's Report." If the annual report does not have this section, it is not valid, so the information in it may be not authentical, meaning that it is useless. To continue with the report's security inspection than check the part "Report of Independent Registered Public Accounting Firm", it should be signed by an active reassuring firm, the most famous are: Pricewaterhouse Coopers, KPMG, Ernst & Young, Deloitte & Touche. The firm's sign confirms that the report was created using Generally Acepted Acounting Principles (GAAP). Browsing through the report, the next part coming is the "Letter to the shareholders", containing summarised information about the company's past, present and future. That could be useful for more basic decisions, based on more summarized information. Next are Notes To Consolidated Financial Statements, here is most of the neggative onformation about the company. Such as critical partnerships, lawsuits and many other types of risks that the company has taken. The next stage in analysing the annual report is reading the part titled: "Management's Discussion And Analysis." Here all the information usually has the purpose to present the company in a good way, usually written by the PR experts, I'm not saying that this information is not valuable, but it may be distorted in some way, so the reader must have that one on mind. The next part of the report can't be manupalated, it is called Consolidated Statements Of Financials. Containing only rough numbers, it can't be influented. Looking at the numbers, the reader makes his own impression based on his own analysis. This part of the report is divided by three main parts. Firtst is balance sheet, presenting a snapshot of the company's situation, but it may be changed many times from that past moment, so the information that contains may be not true anymore. The second part is the cashflow statement, showing the monye flow in the company and it's change during certain periods of time. Very crutial part of inspecting company's statement, based on the fact that the monyeflow is one of the most important factors forming company's status. The third part is based on the profit / loss dependence here is the most useful analyzis showing if the firm is spending more than it is earning, howerver, the information may vary due to some factors. The report also includes an analysis of the Consolidated Statements of Financials, which is the following part of the report. This analysis is basicly comparing balance sheets, or cashflows for different years (one or more) viewing the trends. Trends are very useful regarding any predictions made about the company. The longer the period is the better the trends are distinged by the reader. The information compared for several years is evaluated in percantages, assuming 100% as the index given in one of the years named base year, the other values in the other years could be higher or lower and in very rear cases being the same. This shows the actual change in the ammount for the different items. Than the amounts of the similar items are expressed as a percentage of the base year's ammount and that is how is formed the index or the trend ratios. In order to susccesfully interpret the information, the reader could seek specific information answering sepcific questions. For example an increase in the stock of the company, could be provoced by changing the whole inventory policy. Increasing in taxation could be a result of very increased sales, but slightly changing profits. Monitoring he fixed assets and the long term debt also could lead to many hidden information about how these assets are being financed. That was the horizontal way of analysing Consolidated Statements of Financials. The vertical method is for comparing statements of companies tha differ in size. For example in the vertical anlysis sales woud be expressed as 100% and every item in the income statement is expressed as a part of this percantage. Viewing the information that way, the reader can examin the reasons of increasing the value of the current assets and stock.
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Summarizing the information given, I must say that analysing company's market, productive and financial performance is a long process, that requires more attention than it seems. To be the analysis as accurate as possible, the reader must notice the smallest detail in the figures of the report and the accounts. Because the slightest change in the trends of an aspect of the company's status, may be equivalent to a dramatic change in future. Reading the report and examining the accounts is just not enough. It is required far more deep inspecting of the data presented and distinguishing the valuable information, directly related to the subject. Market and productive and financial performance are influenced by many factors and this is the reason why their analysis is so hard to achieve. And that every element of the reports and the accounts has it's huge contribution in this analysis. Following these steps and spending the time required will probably lead to an success analysing the trends, that could answer the exact question which response the analyzer seeks, and answering that question to build up an entire new strategy and tactic over the subject.