Chapter 3

How Investors Read a Financial Report


Bullet Using ratios to understand profit performance

Bullet Discovering financial information

Bullet Understanding the audit report

Bullet Scanning footnotes and identifying the important ones

In reading financial reports, directors, managers, business owners and your investors, both actual and potential, need to know how to navigate through the financial statements to find the vital signs of progress and problems. The financial statement ratios explained in this chapter point the way – these ratios are signposts on the financial information highway. You can also keep abreast of business affairs by reading financial newspapers and investment magazines, and investment newsletters are very popular. These sources of financial information refer to the ratios discussed in this chapter, on the premise that you know what the ratios mean. Most managers or individual investors in public companies don’t have the time or expertise to study a financial report thoroughly enough to make decisions based on the report, so they rely on stockbrokers, investment ...

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