IMPORTANT SECTIONS IN FINANCIAL FILINGS VALUABLE FOR FUNDAMENTAL ANALYSIS
Where investors often look for financial statements in fundamental analysis to be on the path for a better investor, there are more statements and information that are available in company’ annual and quarterly SEC filings that can provide additional information to investors about a company. Here are some other noteworthy sections:
Management Discussion and Analysis
A company’s management usually describes the background of the company and talks about the recent year as an introduction. Management providing details on the company in few pages are called management discussion and analysis (MD&A). MD&A helps investors in getting sufficient information on a company and mention the areas in which the company has performed better as well.
However, not all details are mentioned by the management of a company since they are willing to provide details to maintain a company’s goodwill and performance. Hence, management analysis is not expected to mention negative aspects of a company.
Investors can go through the following in MD&A:
- Look for the accuracy in managements comments.
- Are financial trends covered in past few years mentioned?
- Are potential risk and uncertainties mentioned?
Describes responsibilities of auditor and directors along with mentioning areas that were audited in financial statements.
Specifies how generally accepted accounting principles are applied along with areas that were examined.
Auditor’s opinion on the audited financial statements.
Investors should rely on auditor’s report as audits provide integrity to financial figures announced by the company. Also, investors should be aware of financial statements that do not have approval stamp of an accountant.
Notes to Financial Statements
Footnotes are of two kinds:
Footnotes can provide insights into the company to investors that can be found nowhere else. This information can be a valuable source of information for investors that can increase their odds of success and provide better investment options.
Investors are advised to pay close attention to every detail that a company discloses to know company’ stability by analysing thoroughly all the financial statements and other mentioned information. Investors can get their hand on information such as borrowing capacity, future growth plans, investment options, return available and past record from the financial statements and other information.