4. Publicly held companies must file annual financial statements within
90 days after the fiscal year end. Quarterly statements are required to
be filed with the Securities and Exchange Commission within 45 days after
the quarter's close. You can have access to these files through the Internet
soon after the filings have been made. Go to http://www.sec.gov/cgi-bin/srch-edgar
and search by the company name to find this information.
5. You can also go to a special site to see all statements filed in
the last 5 days. This will help you keep on top of what information is
recently available. Go to http://www.sec.gov/edaux/current.htm
to find this information.
6. There can be a lot of pages in each filing, but don't be intimidated.
Each filing with the Securities and Exchange Commission always follows
a standard format.
7. Every financial statement filing contains special sections called
management discussions and supplementary data from the auditors (if audited.)
Don't skip these sections! Read every word. It is a very good source that
will help explain what has happened in the company.
8. Be sure to look at not only the current year financial statement,
but also the year to year trends for each financial ratio. This helps
give you a perspective on how the current year activity compares to prior
years. You will then know whether the financial strength of the company
is getting stronger or weaker.
9. Try to look at all the facts that are given or known. Think through
how each fact might impact the financial ratios and what this might be
telling you about the company.
10. Remember to evaluate the significance of each financial ratio, look
at both the company's background and their current situation. A financial
ratio that is perfectly acceptable in one situation, may be a red flag
for potential risk in another situation. For example, a higher amount
of leverage which is shown in the debt to equity ratio may be perfectly
normal if the company was newly established or had recent acquisitions.
However, a high debt to equity ratio for a company that has been in existence
for many years with no recent acquisitions may signal problems.
