Companies
What a good annual report tells you, and what it hides
We read the footnotes first. That is where the company stops performing.
The front of an annual report is written for effect. The back is written for the auditors. We read it back to front.
The glossy letter tells you how management wants to be seen. The footnotes tell you what they are required to disclose: how revenue is really booked, where the liabilities sit, what the incentives actually reward. Tone matters too. A chairman who discusses a mistake plainly is worth more than one who has, apparently, never made one.
The tells
We watch for accounting that grows more complicated as the results grow more impressive. For "adjusted" figures that only ever adjust in the flattering direction. For a definition that changes in the very year it would otherwise have hurt. None of these is proof of anything. Each is a reason to ask another question.
A good report is not the one with no problems. It is the one that tells you about the problems before you have to go and find them.
The views above are the firm's own and are provided for information only. They are not investment advice, nor an offer or solicitation to invest. Capital at risk; the value of investments can go down as well as up, and past performance is not a guide to future results.
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