Making the decision to invest in a company can be tough, considering the intricacies involved. Some people make it on a feeling of gut while others—the smarter ones I’d say—do it on the basis of a company’s annual report. The importance of a company’s annual report cannot be stressed upon enough when it comes to getting a good picture of the company, yet it’s not given its due importance by most investors. Here are some of the sections of annual reports that most investors conveniently decide to skip:
The Auditor’s Report
Imagine making a decision to invest into a company based on its high account receivables (an extremely simplified example) without having the knowledge that the auditor had given a note regarding it indicating that, to the best of their knowledge, a part of these receivable will be unrecoverable. What then? It’s pivotal for investors to, at least, look at the auditor’s report once to ensure that there are no modifications that have been issued. Check also to see if a company is in the habit of changing its external auditors regularly. It might be more relevant for you than you may think!
The Director’s Report
The Director’s Report lists among the most commonly ignored sections of the annual report, by an average investor, owing to the fact that some investors don’t feel that words should be made a part of a report that describes a company’s financial position. To put it in a nutshell: the Director’s Report will tell you about any expansion plans that the company might have. This, when combined with the economic outlook, contribute to be an effective meter in the determination of the future of the company.
Corporate Social Responsibility
Companies tend to make profits…big profits. Wouldn’t you want to know how those profits are impacting the society? Companies have a responsibility to carry out their CSR initiatives owing to the fact that they generate their profits off of the society. If a company hasn’t been conducting its CSR activities like it means (painting a few walls in the name of it) then you truly need to consider whether such a company—that doesn’t seem to care about the society—deserves to get a hold of your hard earned money.
The Business Model
Considering the fact that a company’s business model, pretty much, dictates the performance and direction of the company, it’s a surprise that more investors don’t pay much heed to it. Looking at a company’s business model not only tells you how it has gotten to where it is (a priceless piece of knowledge, no doubt!) but it also informs you of what the company intends to do in the future. Considering that the investments you make today will reap benefits in the future, isn’t it important to have an idea of what the future will be like for the company?
According to the greatest investor of all time, Warren Buffet, “Read 500 pages every day. That’s how knowledge works. It builds up like compound interest”. Reading, truly, is the habit of the truly successful people. However, if you’d like an expert’s advice on a company’s annual report, our professional experts at SKB Accounting will be more than happy to be of assistance.