Volume 11, No. 4


Reading The 2001 Annual Reports: A User's Guide:  In the recent past, reading annual reports was an activity often attributed only to retro kooks: what could be more old-fashioned than actually caring about what happened in the past? After all, the mid-to-late 1990's were a time when new investment horizons beckoned to those who were bold enough to ignore financial reports based on Generally Accepted Accounting Principles. Telecom and internet stocks offered phenomenal returns to those willing to bravely look forward into the future with "new metrics," instead of peering into the past. If the implosion of the internet world was the first wake-up call for investors to pay attention to fundamentals, then Enron was the five-alarm fire bell. Investors and analysts will likely spend more time with annual reports this year than in the previous ten years combined, as they try to divine future risks from past data - something they might have laughed at only a short while ago. The "fear factor" shouldn't be the only motivation for the study of annual reports. It's the only time of year that so much information is available for investors to evaluate, much more so than the scrawny portions served up in quarterly filings. The annual report provides investors with the means to challenge their concepts about the worth of a firm - if they're willing to invest the time.

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