Other Information Sources

To get a fairly accurate picture of a company’s financial position and financial performance, analysts tend to base their financial statement analysis on the company’s audited, annual financial statements. The audit of the annual financial statements, in this case, must have been done by an independent auditor. There are, however, other important sources of information that can be relied upon in this process to facilitate informed investment decision making.

Information Sources Other Than Annual Financial Statements

Other than annual financial statements and supplementary information, financial statement analysis can be conducted using the information provided by a company in its annual report or other publicly available documents such as proxy statements. Such sources offer information on:

• management and director compensation;
• stock performance; and
• any potential conflicts of interest which may exist between the company’s management and the board of directors, or shareholders

Companies also prepare interim financial reports typically on a semiannual or quarterly basis, depending on regulatory requirements. These interim reports, which are usually not audited, provide the basic financial statements (statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows), condensed notes as well as updated information on a company’s performance and financial position since the last audited period.

Information may also be presented on company websites, press releases, and in conference calls between a company and analysts and investors.

Additionally, periodic earning announcements, which are a form of press release usually occurring well before a company files its formal financial statements, are considered to be particularly useful to analysts.

Question

Which of the following pieces of information is least likely presented in a proxy statement?

1. Information on stock performance.
2. Information on revenues and expenses.
3. Information on management and director compensation.

Solution

The correct answer is B.

A proxy statement is a statement bearing information relating to matters that will be put to a vote at the company’s meeting with shareholders. It is distributed to shareholders ahead of the meeting. Proxy statements usually include information on stock performance and management and director compensation, but not information on revenues and expenses.