General Criteria when Analyzing a Financial Statement

by Starcy Dobrovich.
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Companies often use their annual reports to attract new investors; you can
guess that these reports contain some marketing fluff and exaggerations.
Most of this embellishment is self-evident. Analyzing a company with a calculator,
paper, and pencil will take you about an hour, and the results of this
examination can help you make sound investment decisions.

Buying stock in a company without reading the annual report is like buying
a used car without seeing it. Here’s a checklist of the information you need
to consider while you review a company’s annual report:

Profitability: How much money did the company make last year?

Survivability: How is the company coping with competition?

Growth: Is the company expanding? How fast is this expansion?

Stability: Is the company subject to radical changes from year to year?

Dividends (if any): Is dividend growth constant? How does it compare
to the industry averages?

Problems: Does the company have any pending lawsuits? Do any other
problems exist?

Risks: Is the company subject to any environmental, political, or
exchange rate risks?

Other factors: Is the management team experienced? Does the company
need more executive talent?

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