To get a fairly accurate picture of a company’s financial position and financial performance, analysts tend to conduct financial statement analysis using the company’s annual, audited financial statements which have been audited by an independent auditor. There are, however, other important sources of information which can assist in this process and aid in making an informed investment decision.
Information Sources Other than Annual Financial Statements
Other than annual financial statements and supplementary information, financial statement analysis can be conducted using information provided by a company in its annual report or other publicly available documents such as proxy statements. These include information on:
- Management and director compensation;
- Stock performance; and
- Any potential conflicts of interest which may exist between the company’s management, board, and 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 held by a company with analysts and investors.
Additionally, periodic earnings 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.
Which of the following information is not usually presented in a proxy statement?
A. Information on stock performance
B. Information on management and director compensation
C. Information on daily expenses
The correct answer is C.
A proxy statement is a statement which is distributed to shareholders relating to matters that will be put to a vote at the company’s meeting with shareholders. Proxy statements usually include information on stock performance and management and director compensation, but not information on daily expenses.
Reading 21 LOS 21e:
Identify and describe information sources that analysts use in financial statement analysis besides annual financial statements and supplementary information