Everyone dreams to own equity in the world’s biggest companies, where dreams are made and success stories are churning out every day. Not to mention the bragging privilege you have over others. “I own shares at Google!” you’d exclaim. It’s a dream everyone’s eager of. What not everybody knows, however, is if the business prospect of the company worth investing to them personally. Yes, the bigger the name, the bigger the promise — but examining their performance is just as important as reviewing their technical analytics. You might find something that doesn’t align with your investment goal if you don’t find another approach.
Thankfully, most business prospect of big companies are available for public access — and mind you, for free! That’s right, you can know all about your most favorite business by reviewing something we call as annual report. Annual reports are great for new and current investors to know which direction a specific company is heading for the coming year. They are also useful if the business is supervised by other parties like government and affiliated institutions.
So, what is an annual report?
In simple language, an annual report is a publication made public annually every end of the financial year. It may be submitted online and/or is sent directly to shareholders and other parties who affiliate with the company. A company’s annual report should be the primary source of everything potential investors and current shareholders need to know. So, rather than taking in other alternative sources who claim they know a company’s financial situation, investors can entirely trust their annual reports. Because they are published by the company, anything that falsely elaborated within the reports can be held against the company.
What to see in an annual report?
Now, don’t get us wrong. Reviewing a company’s annual report is no easy task. They put a lot of effort into it and the content is extremely elaborate. You need to know exactly what to look for and what to question in each part. Here’s a small recap of an annual report’s categories. Note that a year’s annual report will never be the same with the previous one because it always fits the company’s necessities, so look out for that.
Company’s accomplishments: How far have they come since last financial year?
Leadership: The people of the company makes all the difference. See who’s in charge of the company and what can they bring to the table.
Vision and strategy: Do they seem realistic? Are they achievable? Are they suitable with the current industry’s condition and how other players compete in the game?
Financial statements: Financial statements have always been the tricky part. Most expert analysts will spend days just to review them. While some parts are easily understandable like their revenue and net profit, some parts need a little extra time to figure out like depreciation, liabilities, assets, amortization, and others.
Risks: This one depends on how honest the company is. You can look this one up externally if you think the company didn’t seem very frank when talking about the risks.
What is not included in an annual report?
Now, not every little detail will be included within an annual report. The points above already take so much space to begin with. So, knowing several other aspects of the business fall to your own hands. Here’s some of the things that are commonly not included in an annual report.
Competition: Companies will not bluntly mention their rivals and how they can tackle the competition. For instance, you can read Blackberry’s annual report from almost a decade ago and think that they have flourishing longevity.
Critical assessment: The point of an annual report is to convince you to invest in them, make it as polished as possible. For a more critical assessment, give external critics a chance.
Stock analysis: They won’t elaborate on the technical analysis. Look it up yourself to suit your investment goal and to know which alternative investment you can dive into.
Macroeconomic conditions: An annual report won’t go into detail on how they’re performing under macroeconomic level. Your investment may escalate or de-escalate without anything to do about their performance due to macroeconomic situations.
Product’s values: Even though an annual report will include rating and accomplishments, they will not elaborate on the values of their products or services. It will come in handy if you invest in the products you already know knee-deep into.
Conclusion
An annual report may seem intimidating at first glance but it is vital to determine a company’s financial conditions and performance. You may need a little getting used to with it, but the information you get is outstanding. Lastly, an annual report gives way deeper insight than any technical analysis could ever give. Just try and you’ll be amazed with how much you’ve gained through a single report.
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