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Investment guides
Information and guides for the new or potential investor.
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| Statement Basics: Looking at other Information |
Most analysts agree that the financial statements, financial ratios, and other comparative measures offer the best starting points for evaluating a company. However, they look at these items to provide only a portion of the information required to adequately evaluate a company for investment.
Analysts begin to put the key numbers into a larger context by looking at two other critical parts of the annual report itself:
The notes to the financial statements offer further explanation of the numbers on the statements. For example, for the statement of earnings, notes might describe changes in a company's investment in research and development (R & D). For the statement of financial position, notes might describe significant liabilities and contingencies.
The management discussion section provides management's perspective on the company's financial operation and performance. Reading this section in consecutive annual reports also allows analysts to gather more subjective information about a company, such as its ability to articulate and consistently pursue long term goals.
For company financial information not contained in the annual report, such as that in copies of form 10-K or form 10-Q filed with the Securities and Exchange Commission, analysts and investors frequently contact the company's investor relations department for copies of those forms.
Finally, analysts extend the scope of their financial information comparisons beyond the two to three year figures in a single set of financial statements. Instead, they look at the same ratios and performance measures over five to ten year periods. To see changes in IBM's financial record over time, visit the historical charts.
Analysts also compare these figures with several other numbers from other sources of business and economic information. For example, they:
- Compare many growth figures, such as growth in sales, with the rate of inflation, and look for rates that exceed that of inflation
- Look at figures for competing companies to determine a company's strength in its industry
- Examine industry averages to gain a historical perspective in order to evaluate a company's chances for long-term success
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