Researching a Company

After you have learned the ticker symbol and begun to watch how a stock trades, you will want additional information about the stock. Information about public stocks is available in both electronic and print formats.

We will cover the following information sources:

  • News
  • Charts
  • Corporate Websites and Reports
  • Annual Reports
  • The Balance Sheet
  • The Income Statement


You can find the most recent stories about a company as well as an archive of other recent stories online. These stories generally come off a newswire and are reprinted in the Wall Street Journal and other papers the following day. These stories should give you a good idea of how a company is performing and the conditions surrounding it.


Charts tell you what has happened to a stock's price over the last week, month, year, or even longer in some cases. There are many formats for charts online. However, all charts are alike in having the price on the vertical axis and time on the horizontal. These graphs show daily, weekly or monthly prices over different time frames. Most charts will let you select between the time frames and many offer added features that can be useful.

A brief glance at the chart will show you whether a stock has been going up or down lately, or staying in the same price range.

The information contained in these charts will mean different things to different investors. On the one hand, technical analysts watch charts for developing patterns and try to base their trading on these patterns. Most technical analysts trade for shorter-term movements, often as little as a few minutes. In addition, few technical analysts agree on patterns since there are many theories on how to interpret charts. On the other hand, efficient market theorists believe that there are no patterns in the price movement of stocks that denote trends.

Theoretical school of thought aside, these charts do show a few useful things. One can quickly see how a company has been performing lately. You can also look for sudden fluctuations that generally happen after a news event. Also, you can compare this graph with graphs of other companies or a market index you may be considering. If a stock is underperforming or out performing its peers or the index, you will want to research why.

Many charts often include moving averages. These averages take into account the average price over the prior weeks or months. Quite often you will see a one-year moving average or a 120-day moving average. This is calculated by taking the average closing price over the last year (or 120 days) at the end of each trading day. Some technical analysts believe that stocks generally return to their moving averages over time. Others, including efficient market theorists, do not put much stock in this theory (literally). Of course, the final decision is yours.

Properly used, charts can give you important information about a stock's historical performance. They can give you clues about the company and where or when to look for further information. However, charts are not the fountains of all knowledge and should be used as a tool along with further research.

Company Profiles

As you learn more about the company, you may want a company profile. Standard & Poor's, Value Line and Moody's, among others, offer this service.

Corporate Websites and Reports

Often, the best place to learn about a company is its corporate website. These are easily found through your favorite search engine. Corporate websites usually describe the company, its products, its strategies, and frequently provide news releases and copies of their reports and SEC filings.

All public companies must report relevant information about themselves on a timely basis. This means that each quarter they file a 10Q with the SEC and make available to all interested parties a synopsis of the 10Q or a quarterly report. Every year, a company must file a more thorough report, a 10K, with the SEC. This report is reproduced in a slightly shortened and more glossy format as an annual report. Like the quarterly report, the annual report must also be made available to all interested parties.

In addition, whenever a material event happens to a company, they must file a report with the SEC that is also made available to the public.

Other reports are often available at the website of the individual corporation. If a report is not available online, you can call the company and they will send it to you.

Annual Reports

These reports vary from company to company, however there is certain information they will all contain. This includes:

The Letter to Shareholders - This is a letter from the Chief Executive Officer of the company briefly describing the highlights of the prior year. It often includes charts and some basic financial information.

Company Description - Here, the company describes its business, its markets and its major events of the prior year. Often, a company describes its business strategy or the characteristics of the market in which it operates.

Financial Highlights - This section provides basic financial information such as revenues, profits, dividends and shares outstanding for the previous two years. The amount of information here varies by company, but the bulk of information will be consistent.

Financial Statements - All reports have the following Financial Statements:

  • An Income Statement
  • A Balance Sheet
  • A Statement of Shareholders' Equity
  • A Cash Flow Statement

Each are described in more detail below. Wording may differ slightly by company, but again the information being conveyed will be very similar.

Management Discussion and Analysis - After the last financial statement, each company presents a short discussion of the numbers presented in the income statement and balance sheet. This discussion generally compares each year with the two prior years, providing many of the details behind the financial statements such as why a cost or revenue went up or down.

Footnotes - All annual reports have footnotes showing the accounting principles used to calculate the numbers on the income statement and balance sheet. Inventories, debt, lease calculations, depreciation and income tax calculations are always shown. For many investors and analysts the footnotes contain the data that most helps them understand a company.

Auditors' Statement - Every public company must be audited by a licensed public accounting firm at least once a year. The accounting firm provides a letter signifying that they satisfactorily completed the audit which is reproduced in the annual report.

Management and Contact Information - At the back of any annual report you will find a list of the members of the Board of Directors of a company as well as its officers, often accompanied by a photo. Here, companies provide their mailing addresses, phone numbers, web addresses and other contact information.

The Balance Sheet

The balance sheet shows the accumulated assets and liabilities of a company. Below we have reproduced a simplified sample balance sheet for an industrial company. Note that the total assets always equal the total liabilities plus shareholders' equity. There are no exceptions to the rule.

Balance Sheet Terms

Current Assets - Assets which are readily liquid or come due in less than one year.

Cash - The amount of money a company has in the bank or similar accounts.

Marketable Securities - Securities such as short-term government debt which a company can liquidate into cash on short notice.

Accounts Receivable - This represents money to be collected for the sale of product or service by a company. For example, if you buy a soft drink for from the corner grocer and promise to pay him tomorrow, he then has an account receivable of . He sold the good, believing you will pay for it, but the money is still owed to him.

Inventories - Products manufactured by the company but not yet sold. Check the footnotes of the company's report to see how this is calculated. This number is netted to reflect the sales and the purchases of the prior year.

Other - This can include just about anything, from tax refunds owed to loans to employees that need to be paid back. Often, the footnotes or the management's discussion provides more detail.

Other Assets - Again, this can include about anything and is sometimes described further in the footnotes or the management's discussion.

Plant, Property and Equipment - The total value of all assets owned by a company that are not readily disposable. This number is netted to show the effects of a year's purchases and depreciation. Details of the calculation are always provided in the footnotes.

Goodwill - When a company buys another company much of the purchase price gets categorized as goodwill. It is amortized over many years following rules presented by the Accounting Standards Board and further described in the footnotes.

Total Assets - The sum of all the assets. Remember this always equals the total liabilities plus shareholders' equity.

Current Liabilities - The debts of the company, which must be paid within one year.

Notes Payable - Generally represents short-term debt such as lines of credit or commercial paper.

Accounts Payable - The amount owed to suppliers of products used by the company.

Income Taxes - As described in the footnotes of an annual report, the amount of money the company will have to pay in taxes during the current year for the prior year's profits. Taxes paid to the government, and taxes declared in an annual report often differ. The difference over time is accounted for in the many tax entries on the balance sheet.

Current Portion of Long-Term Debt - Represents the original long-term bonds and other loans of a company that come due during the next year.

Other Current Liabilities - Again, this can include about anything and is sometimes further described in the footnotes or the management's discussion.

Long-Term Debt - All debt that is due in more than one year, such as corporate bonds or loans.

Deferred Income Taxes - Income taxes which the company will owe the government in more than a year that result from differing tax and financial accounting methods.

Minority Interest - This represents the holding of less than 50% of the voting stock of another company. It generally appears in the shareholders' equity section of a balance sheet. This may vary depending on the details of a deal. In addition, any profits or losses from this should show up on the income statement.

Other Non-Current Liabilities - This can also include anything and is sometimes further described in the footnotes or the management's discussion.

Stockholders' Equity (Shareholders' Equity) - Represents the amount of money invested in the company by shareholders.

Common Shares at Par Value - All shares of stock have a par value, which is a somewhat arbitrary value assigned to the stock when issued. It is generally either one cent or , but can vary by company. This amount multiplied by the shares outstanding on the balance sheet provides the number shown.

Additional Paid-In Capital - Represents the additional value paid to the company per share of stock issued when the stock was originally issued. For example, if a company sells stock to the public at per share in the IPO and the par value is , then the other per share goes into additional paid-in capital.

Retained Earnings - The net income of a company less any dividends paid. This money would also be owed to shareholders if the company spontaneously liquidated, so it counts as part of stockholders' equity.

Total Liabilities and Stockholders' Equity - This is the sum of all the numbers on the liabilities side of the balance sheet. Remember, it always equals total assets.

The Income Statement

The income statement shows how much money a company made or lost in the prior year (or quarter) and provides some detail of where the money was earned and spent.

Income Statement Terms

Revenues - The amount a company made selling its products and/or services. If a company has many divisions or geographic groups, the subtotals are shown. Sometimes this breakdown is shown elsewhere in the report.

Costs of Goods Sold - Shows how much the company spent to manufacture or directly provide the product or service. For example, if a company sells steel, this number represents the cost of the raw materials, labor and other expenses directly related to making steel.

Gross Profit - The difference between costs of goods sold and revenues. It shows you how much the company would have made if it did not have any other expenses or taxes.

Selling, General and Administrative Expenses (S, G & A) - The expenses of a company for necessary operations not directly related to the manufacture or delivery of a product including the cost of offices, a sales team, information technology and management salaries and benefits. Often, depreciation and amortization is lumped into this number. In these cases, you need to look at the cash flow statement to find the true number.

Depreciation and Amortization - When a company invests in plant property or equipment designed to last more than one year, it is allowed to declare this expense over many years. The number of years and methods of declaring it vary by item and by company.

Operating Income or Earnings Before Interest and Taxes (EBIT) - The gross profit less the S, G & A, depreciation and amortization. It shows how much a company made from operations before financing activities, other unusual activities and taxes.

Interest Expense or Income - Shows how much interest a company paid on its outstanding debt during a year. Sometimes a company has little debt but has made some loans to other companies, in which case it would have interest income.

Other Expenses or Income - Often a company has expenses or income not related to its main lines of business. This can be from the sale of stock held in another company, from the sale of a plant or from other sources. These numbers are sometimes explained in the management discussion and analysis.

Income Before Taxes - The sum of all the numbers above. It shows how much profit a company would have made without taxes.

Provision for Income Taxes - Shows how much the company owed the government in taxes. Remember from the balance sheet that companies calculate taxes using both income tax accounting and financial accounting. These numbers generally differ in which case the actual amount of taxes paid can be computed using the footnotes.

Net Income - The income a company earned after all sources of revenues and expenses are taken into account.

Earnings Per Share - Equals the net income divided by the average shares outstanding. It shows how much the company made per share of stock.

Fully Diluted Earnings Per Share - Equals the net income divided by the fully diluted shares outstanding.

Average Shares Outstanding - shows how many shares of stock are issued and held by an investor.

Fully Diluted Shares Outstanding - Often a company issues options to employees, management, bondholders or other parties. This number shows how many shares would be outstanding if all these options were exercised.

Statement of Shareholders' Equity - This statement provides the detail behind the balance sheet shareholders' equity by showing the additions of net income and equity raised as well as any subtractions. The end sum is transferred directly to the balance sheet.

Statement of Cash Flows

Since corporate accounting is based on the accrual method and recognizes revenues in expenses based on certain guidelines set by the Accounting Standards Board, the numbers on an income statement generally vary from the cash used and collected in a given year. This statement reconciles the two accounting systems. It also provides some useful numbers such as depreciation, money raised or debt paid back and investment in a plant or other asset.

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