How to Read a Financial Report, 9th Edition

16 FOOTNOTES AND MANAGEMENT DISCUSSIONS

This and the following two chapters expand our discussion on analyzing the information presented in financial reports in addition to the three primary financial statements. This chapter explores two basic types of additional information presented in business financial reports, footnotes and management discussions of operating results. Footnotes apply to specific metrics and data points to supplement the financial statements included in a financial report. Management discussions of operating results is a written assessment of the information presented in the financial statement. In the next chapter (Chapter 17) we explain commonly used financial statement ratios and what they mean. In Chapter 18 we explore an important topic that flies under the banner of financial engineering.

Financial Report Content in Addition to Financial Statements

When reading this chapter, it is important to keep in mind that while a company’s financial statements represent the backbone for analyzing and evaluating its financial performance, financial reports include extensive additional financial, business, legal, and regulatory material that accompany the financial statements. The actual financial statements may occupy anywhere from three to six pages of an external business financial report. But the complete financial report may often exceed 100 pages (compliments of management providing their discussion/assessment of operating results along with the required ...