It makes sense that, before you invest in anything, you
should read the fine print and know exactly what you’re getting yourself into.
When it comes to most major investments, that “fine print” comes in the form of
annual reports. Unfortunately, however, a lot of investors readily admit to not
reading those reports. Even though that’s not a good practice, it is an
understandable one. Annual reports are tough to get through, tpically being
densely worded and full of financial jargon. So, what’s a smart investor to do?
Well, you could, instead of forcing yourself to read the whole thing, at least
commit yourself to reading through the most important parts.
The Executive Summary
One of the most important parts of an annual report can
usually be found right at the beginning. It’s known as the executive summary
and is basically a “talk” from the CEO explaining the latest happenings and
changes within the company. If the CEO seems happy and has clear goals and
predictions for the future, things are looking good. If the note doesn’t really
say much, is negative, or seems to “beat around the bush” about the future,
watch out!
Money Matters
Not all of the important information in an annual report is
delivered through words. In fact, the numbers, not the words, often tell the
real story about how a company, and thus your investment in it, is faring. Look
to see if debt levels have increased and if sales are going down. If you notice
any of these issues without a reasonable explanation, it may be time to look to
other investments.
Proxy Voting
Almost every annual report will include a space where you
can cast your “proxy vote.” Casting that vote is part of your duty as a
shareholder, and if you don’t do it, you could be deemed “inactive.” Fill out
your vote, and if you don’t understand the jargon or what you’re doing, talk to
your investment advisor.
Ideally, we’d all sit down and read through and understand
every word of our annual reports. However, that isn’t always possible. If you
can’t do that, at least pay attention to these important areas of your annual
reports for maximum benefits and safety.
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