Financial Statement Analysis Sources

There are many sources available for analysts evaluating a company’s financial performance.

Regulatory Filings

Although local securities regulators specify the filings securities-issuing companies in their jurisdiction must complete, international accounting standards and securities regulations are converging. Therefore, U.S. Securities and Exchange Commission (SEC) rules provide a useful benchmark. The primary financial statement filings are:

• Form 10K. Most reporting companies file this form annually with the SEC. It provides audited financial statements and a comprehensive overview of the registrant’s business. It must be filed within 90 days of the company’s fiscal year-end.
• Annual Report to Shareholders. In addition to filing a 10K with the SEC, companies issue an annual report to shareholders. This state-of-the-company report, including an opening letter from the Chief Executive Officer, in addition to the material found in the 10K.
• Proxy Solicitation Materials (Proxy Statement). State laws govern shareholder voting rights. When matters arise requiring a shareholder vote, a proxy statement must be furnished containing the information necessary to place an informed vote. They also provide information on management and director compensation, company stock performance, and any potential conflicts of interest that may exist between management, the board, and shareholders.
• Form 10-Q. The 10-Q is a quarterly report. It includes unaudited financial statements and provides a continuing view of the company’s financial position during the year. The 10-Q must be filed for each of the year’s first three fiscal quarters and is due within 45 days of the quarter-end.
• Form 8-K. This “current report,” is filed whenever a previously unreported material event or important corporate change affecting security holders occurs.

The 10K and 10Q include the four primary financial statements: the balance sheet, the income statement, the cash flow statement, and the statement of changes in equity, as well as notes and management commentary.

Other Sources

Earnings Announcements

Companies typically issue a press release announcing their interim and annual earnings well in advance of submitting regulatory filings. These releases contain much of the important information investors seek. They are often supplemented by conference calls on which investors and analysts can ask management specific questions about the course of business.

Other Company Sources

Investors can also often find information on the company’s web site or through its press releases. The investor relations area of the web site can be a good starting place.

External Sources

Analysts require far more information to make sound investment decisions than is available from company sources alone. To develop a full picture, they must consider additional sources such as:

• Economic analyses
• Industry analyses
• Regulatory analyses
• Trade publications
• Peer company financial statements
• Channel checks (using key customers and suppliers to get a sense of how well a company is doing)
• Product trials
• Outside experts