How to Research Stocks

Savvy investors keep track of what’s happening in the financial world. The Internet, newspapers, magazines, business periodicals, television and radio news broadcasts provide easy access to information about the global economy and the markets.

Additional information about a specific company can be found online and in a company’s annual report and other important financial statements they are required to file with the SEC, such as quarterly reports and insider transactions. When considering an initial public offering of a stock, a prospectus is an important document to review.

Finding Information on the Internet

Financial websites such as Euronext.com allow you to enter a stock symbol and get information about the issuer, including its current price (15 minutes delayed) and past performance. If you don’t know a company’s ticker symbol, or mnemonics, which is its shortened name in capital letters (like ML for Michelin or OR for L’Oréal), the websites can help you to look it up. You can also keep track of news stories, see performance graphs, and get other data about a company.

If you don’t know a company’s ticker symbol, the websites can help you to look it up. You can also keep track of news stories, see performance graphs, and get other data and information about a company.

Many such websites also offer links to the corporate homepages or investor-relations pages of the issuer’s corporate website, where you will find even more information, such as investor fact sheets, management backgrounders, descriptions of any direct investment programs and Regulatory filings, including annual reports.

 

Reading Annual Reports: What the Numbers Mean

A company’s annual report is required reading by some financial regulators, such as the Autorité des Marchés Financiers (AMF) in France or the Financial Services and Markets Authority (FSMA) in Belgium. The annual report is an important document to help you evaluate a company’s financial health. When considering an initial public offering of a stock, a prospectus is an important document to review. These documents are very useful for individual investors and you can get an easy access to them.

Most annual reports include:

  • The Balance Sheet. This summary of a company’s assets and liabilities offers a snapshot of the company’s financial health at a specific point in time. Data from the end of the current year is compared to the same data from the previous year, so investors can see the changes and attempt to figure out how a company is performing.
  • Liabilities, or debts. The company might list as liabilities its accounts payable (money it owes for supplies and other services), unpaid wages, outstanding loans, taxes, and dividends it will pay to shareholders.
  • Stockholders’ equity, also called the net worth of a company. It is the value of all the shareholder investment in the company: the value of the company’s preferred and common stock, the money made from selling stock, and the profits that have been reinvested. The assets side of the ledger must equal liabilities plus the shareholder’s equity.
  • Statement of Income and Retained Earnings. If the balance sheet is a snapshot of the company’s finances at a single moment, the income statement is more like a movie. It links together several balance sheets and shows the company’s financial performance over the period of a month, a quarter or even several years. The income statement tallies all income, subtracts expenses, and shows how much money is left to reinvest in the company. It compares that number over time. You want to see that a company is taking in more money than it is spending and is investing in growth.

Statement of Changes in Financial Position. This statement deals with working capital — money used on daily operations of the company. The statement, which may compare several years, shows how much working capital was available, and how it was spent.

  • Accountant’s Report.Every annual report includes a report from an independent accountant. The accountant’s report verifies that the annual report is a truthful reflection of the company’s finances and that it was compiled in compliance with normal auditing standards and accounting practices. The accountant will note if the annual report fails to meet one of these standards.