8 Reports to Look at Before Buying A Company
"Never invest in a business you cannot understand." - Warren Buffett
Most Important Reports
When you're researching a company, whether for investment or business purposes, it's crucial to delve into a variety of documents, reports, and press releases.
These can provide a holistic view of the company's financial health, business strategy, operational efficiency, and potential risk factors.
This article will simplify and explain some of the key sources of information that you should examine.
1. Annual Reports
An annual report, also known as a 10-K in the United States, is a comprehensive report on a company's activities and financial performance throughout the preceding year.
In this document, you'll find a wealth of information, including:
Management Discussion & Analysis (MD&A): The company's management provides context for the financial statements, discusses the company's performance, and gives their view of the company's future prospects.
Financial Statements: These include the income statement, balance sheet, and cash flow statement, which collectively provide a detailed view of the company's financial health.
Notes to the Financial Statements: These provide additional details and context for the financial statements, such as accounting methods used, details of specific line items, and contingencies or liabilities not included in the balance sheet.
2. Quarterly Reports
A quarterly report, or a 10-Q in the U.S., provides an update on the company's performance since the last annual report.
While less detailed than the annual report, it provides more current financial information and may also include updates on significant business developments.
3. Proxy Statements
A proxy statement, or DEF 14A in the U.S., is issued before annual shareholder meetings.
It provides information about issues that will be voted on during the annual meeting, details about the company's executive compensation, and any conflicts of interest that might exist among the company's management or board of directors.
4. Press Releases
Companies issue press releases to announce key developments, such as quarterly earnings, new product launches, leadership changes, mergers and acquisitions, and other significant events.
Press releases can provide timely information about a company and also offer insight into how the company wants to present itself to the public.
5. Earnings Call Transcripts
After each quarterly earnings release, most public companies host a conference call to discuss the results.
The transcript of this call can be a valuable resource, providing insights into management's perspective on the company's performance, their response to analyst questions, and hints about future plans or potential challenges.
6. Securities and Exchange Commission (SEC) Filings
In addition to the annual and quarterly reports, companies also file other documents with the SEC (or the relevant authority in other countries).
For instance, Form 8-K reports are filed for significant events such as acquisitions, leadership changes, or bankruptcy.
Form 4 reports are filed for insider trading activity.
7. Industry Reports
While not specific to the company, industry reports can provide valuable context.
These can help you understand the competitive landscape, industry trends, market size, and other factors that could impact the company's performance.
8. Analyst Reports
Equity analysts at investment banks and independent research firms often publish detailed reports on the companies they cover. These reports can provide a different perspective, and they often include earnings forecasts, valuation models, and investment recommendations.
In conclusion, a variety of documents and reports can provide critical information when researching a company. By looking at multiple sources and considering different perspectives, you can develop a comprehensive understanding of the company's performance, strategy, and potential risks. Remember, though, to always apply critical thinking and not to rely solely on one source of information.
Wrapping up
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