If you want to learn to read annual reports, you'll need to make sense of the different financial reports they contain. Here are brief descriptions of the three biggies in every annual report:
The income statement is sometimes called the statement of operations. It shows how much was raked in through sales and how much was kept as profit over a certain period of time, such as a quarter or a fiscal year.
The balance sheet reflects a company's financial health as of a particular date, showing what the firm owns and owes in terms of assets and liabilities. (Little cash or high debt might be worrisome.)
The statement of cash flows notes how much cash was generated (or lost) during the period and where it came from and went to. Pay attention to how much is coming from ongoing operations -- the stuff produced and sold. If asset sales or stocks and bonds issued are generating most of a company's cash, that might be a cause for concern.
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