Western Investment Club

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Western Investment Club
Educational Series Annual Reports Financial
Statements
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What is an Annual Report?

• A yearly document intended to display past
  performance and future goals to current
  prospective shareholders
• Certain components are mandatory
• Management Discussion Analysis
• Investment Highlights Risks
• Financial Statements
• Used also as a marketing tool

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What Does an Annual Report Contain?

• Opening Fluff
• High-gloss pictures, impressive looking charts
  graphs, words from Chairman, management, and
  low-level employees
• Financial Highlights
• Brief overview of operations

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What Does an Annual Report Contain?

• MDA
• Summary of company industry
• Discussion of historical results and future goals
• Very company-friendly, but digging yields
  valuable information ? read with a grain of salt
• Investment Highlights Risks
• Mostly garbage, worth only a skim
• Highlights are best-case scenarios
• Risks are listed to cover their asses against
  legal liability, so everything and anything is
  listed

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What Does an Annual Report Contain?

• Financial Statements
• This is the real meat of the document
• Only part of the document that cant be spun or
  painted in a better light
• Full detail later in presentation
• Key Notes to Financial Statements
• Obscurities can be detected here
• Requires decent accounting knowledge
• Always scrutinize the notes

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How do I Receive an Annual Report ?

• Company Website
• Electronic Copy
• On-line mail order form
• www.freeedgar.com (US)
• www.sedar.ca (Cdn)
• Phone Investor Relations Department
• Theyd be more than happy to send!

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Financial Statements
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What are Financial Statements?

• Periodic accounting statements released so that
  investors can examine the operation of the
  business
• Detailed statements annually
• In North America, less-detailed quarterly
  statements are released as well

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What Type of Statements are There?

• Balance Sheet
• Income Statement
• Cash Flow Statement
• Key Notes to Statements

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Balance Sheet

• Assets
• Resources owned by the company
• Liabilities / Owners Equity
• Debts or obligations of the business
• Liabilities amount of loans / obligations
  loaned to business by creditors
• Owners Equity amount of money invested into
  business by owners

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Assets

• Current Assets
• Assets than can be liquified within 1 year
• Listed in order of liquidity
• Fixed Assets
• Assets that can be liquified in more than 1 year
• Typically are capital assets (plant, land, etc)
  that depreciates (loses value) over time
• Net value (cost total depreciation)
• Intangible asset section
• Assets with no physical presence
• Patents, goodwill, etc.

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Liabilities / Owners Equity

• Current Liabilities
• Debts due within 1 year
• Long-Term Debt
• Debts not due within 1 year
• Owners Equity
• Value of shareholders original investment
  retained earnings

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Income Statement

• Profitability results for previous year
• Key Lines
• Revenue
• Gross Profit
• Operating Expenses
• Operating Profit
• Non-Operating Expenses
• Net Income

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Income Statement

• Revenue
• Dollar value of all sales during the year
• Gross Profit
• Profit received from revenue
• Operating Expenses
• Expenses incurred to operate business
• Operating Profit
• Profit from primary operations of business
• Non-Operating Expenses
• Expenses not related directly to operation of
  primary business (interest charges, etc.)
• Net Income
• Total profit, after everything is considered

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Cash Flow Statement

• Concerned only with the incoming and outgoing
  cash to the business
• Income Statement includes and excludes many
  non-cash items
• Depreciation, Capital Expenditures, Financing
• Used with BS to determine solvency
• Useful to compare companies operations excluding
  capital structure (Operating Cash Flow)

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Cash Flow From Operations

• Operations
• The activities the company involves itself in to
  make money
• Looks at the differences in areas such as income
  from one year to another

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Cash Flow From Financing Investment

• Financing Activity
• Looks for the cash used or gained in areas such
  as capital stock issuance, bank indebtedness, and
  dividends on equity
• Investment Activity
• Looks as cash generated and/or used in areas such
  as fixed asset purchase, business acquisitions,
  etc.