If you are going to be a serious investor in the Australian Securities Exchange (ASX) or elsewhere and hope to make a living from money earned from stock market investing, you will need to be able to read annual reports and understand them. This is crucial. However the sad reality is a majority of all stock market investors never really care to take a look at these annual reports. These reports are available in print and are post mailed to the stock holders, and they are also available electronically – but whichever format they are in, the annual report mostly remains unread.

However if you are reading them and understanding them, you can enjoy an edge over the other investors because you will then have more information. So those who are really smart investors not only read the annual reports of the stocks they own, but they also go through the ones of the company’s competitors. This helps them find out how the company is performing as compared to the competition.

Here Are Certain Things You Should Be Looking At In The Annual Report

Audit certificate: Before anything, it needs to be confirmed that all figures mentioned in the report is accurate, and that, the auditor has passed everything. In some cases, there is a paragraph where there is an ‘emphasis of matter’, where the auditor highlights the issues that the company aces. This paragraph can be very enlightening indeed.

Take a look at debt: Find out what is the position of the company’s debt. If you find that the debt is somewhat on the higher side, then you have every right to ask as the stock owner about the company’s position with the bankers and on interest cover.

Valuations accountability: There are no issues when the asset values are going up. However when they are going down, there are many companies that blame the accounting standards, rather than take responsibility. It is a good idea to ask the management about it and recommend them to take responsibility.

Remuneration and governance: Do take a look at the statement of corporate governance. There are companies that never change this year after year, but this is not right. The statement should be a reflection of the company’s policies regarding risk management, stock trading policies, remuneration practices etc.

The year ahead: Often the annual report also mentions what the company expects in the next 12 months and even beyond that. In certain cases there are key performance indicators for the last year and even how the company performed relative to each KPI. This should give the investor a great deal of information about where the company is headed.

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