How to read the annual report of a company?

An annual report is a document that public corporations must provide annually to shareholders that describes their operations and financial conditions. Typically, an annual report will contain the following sections:

  • General corporate information
  • Operating and financial highlights
  • Letter to the shareholders from the CEO
  • Narrative text, graphics, and photos
  • Management's discussion and analysis (MD&A)
  • Financial statements, including the balance sheet, income statement, and cash flow statement
  • Notes to the financial statements
  • Auditor's report
  • Summary of financial data
  • Accounting policies

In the United States, a public company will file both an annual report and a 10-K report to the U.S. Securities and Exchange Commission (SEC). When you look at the annual report, the financial statements are particularly valuable as they can help you understand the financial health and status of the company. Besides, an annual report can provide more details about how the company operates, including:

  • Whether it’s able to pay debts as they come due
  • Its profits and/or losses year over year
  • If and how it’s grown over time
  • What it requires to maintain or expand its business
  • Operational expenses compared to generated revenues
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