The 2011 Annual Reports: A Heads-Up For Investors: After fourth quarter earnings releases, it’s that time of year again: that magical month between Valentine’s Day and St. Patrick’s Day when great masses of 10-Ks are filed with the SEC. The biggest of the big firms - the large accelerated filers, with public float exceeding $700 million - will have to file their 10-Ks by February 29, and plain old accelerated filers with float under $700 million and over $75 million have until March 15 to file. The non-accelerated filers - the market’s little guys, with public float less than $75 million - have to file their 10-Ks by March 30.
The filings never get thinner, and every year it gets harder to get through them with any kind of momentum. It’s probably more tempting than ever to skim them: after all, companies haven’t been revealed to be congenital liars like they were only ten years ago. There’s a placidness to financial reporting these days: companies don’t seem to be pushing the limits like they once did. Chalk it up to the effectiveness of the Sarbanes-Oxley Act, and also to a reinvigorated audit function. (At least, reinvigorated in comparison to what it was at the beginning of the century.) It would be foolish, however, to become complacent: no trend lasts forever. Another way to think of it is that all good things must end - and you don’t want to be caught off-guard when they end.
Resist the urge to be complacent by digging into the annual reports. There’s no magic disclosure, no sure-fire ratio that will give you all the assurance you need that you’re making a good investment decision. All you can do is try to be aware of a company’s biggest operational risks while maintaining skepticism about performance. Use all the due diligence you can muster while reading the annual report to gather every nuance available for piecing together the factual mosaics making up the big picture.
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