What to read in an annual report

Hi guys,

Since some public companies have rather lengthy annual reports (Deutsche Bank has e.g. over 600 pages), I was wondering what sections you usually focus on in an annual report, to get a good overall understanding of a company?

 

Really depends what industry you're in. Unless you're auditing the company or working in an ER coverage group that covers a select number of companies, I'm pretty sure nobody reads the whole report. Maybe research analysts at a true value shop that spend years doing due diligence on companies. Aside from that, it's not worth the time. Could be worth reading a shorter one if you simply want to get familiar with financial statements. Definitely don't read a 600 pager. Stick to something in the 100 page range.

In my industry for example, the actual financials are not that important (BS/IS/CF), but certain items only released annually are. Some things I look for but this really depends on the person would be the analysis of a company's dividends, and maybe parts of the MD&A section. Shareholder taxation information as well might be useful.

 

Thanks blackjack!

So besides MD&A and the financials, what other annually published items do you look at?

And how much time do you give yourself usually, if you want to get an overview of a company which you've never looked at before, by reading public reports?

 
Best Response
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Really depends what industry you're in. Unless you're auditing the company or working in an ER coverage group that covers a select number of companies, I'm pretty sure nobody reads the whole report. Maybe research analysts at a true value shop that spend years doing due diligence on companies. Aside from that, it's not worth the time. Could be worth reading a shorter one if you simply want to get familiar with financial statements. Definitely don't read a 600 pager. Stick to something in the 100 page range.

In my industry for example, the actual financials are not that important (BS/IS/CF), but certain items only released annually are. Some things I look for but this really depends on the person would be the analysis of a company's dividends, and maybe parts of the MD&A section. Shareholder taxation information as well might be useful.

None of this sounds accurate to me. Everyone I know reads the 10-k of every company they research. Aside from banks, most Ks are only 100-200 pages of reading. If you can't get through it in 1-4 hours, you have no business being in this business.

And by "business" I mean investing based on fundamentals, not trading on technical analysis or whatever else those guys use.

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Really depends what industry you're in. Unless you're auditing the company or working in an ER coverage group that covers a select number of companies, I'm pretty sure nobody reads the whole report. Maybe research analysts at a true value shop that spend years doing due diligence on companies. Aside from that, it's not worth the time. Could be worth reading a shorter one if you simply want to get familiar with financial statements. Definitely don't read a 600 pager. Stick to something in the 100 page range.In my industry for example, the actual financials are not that important (BS/IS/CF), but certain items only released annually are. Some things I look for but this really depends on the person would be the analysis of a company's dividends, and maybe parts of the MD&A section. Shareholder taxation information as well might be useful.

None of this sounds accurate to me. Everyone I know reads the 10-k of every company they research. Aside from banks, most Ks are only 100-200 pages of reading. If you can't get through it in 1-4 hours, you have no business being in this business.

And by "business" I mean investing based on fundamentals, not trading on technical analysis or whatever else those guys use.

Similar thoughts. At the research intensive funds it's quite normal to read almost all bits of the annual report. ARs are full of gems that help you really understand the business in question.

 

I mentioned those covering companies or looking into companies as investments should read it. Without going into too much detail, my fund isn't doing core research directly into individual companies. Therefore the annual reports only serve certain purposes.

 

Your interviewer will know more than you give them credit for. Unless of course, somehow you have live deal experience and inside knowledge of their deal flow without working there.

Know the executive summary, the key drivers of their net profit, and the key measures of their profitability.

Basically you need to: Get 10-k. Ctrl+F Item 1. Read that. Ctrl+F Item 7. Read that too.

 

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