美林：How to read a financial report

HOWTOREADAFINANCIALREPORTINTRODUCTION............................INSIDEFRONTCOVERHOWTOREADAFINANCIALREPORT...........................1AFEWWORDSBEFOREBEGINNING............................3CONSOLIDATEDFINANCIALSTATEMENTS..........................4THEBALANCESHEET......................................8JUSTWHATDOESTHEBALANCESHEETSHOW?....................22THEINCOMESTATEMENT..................................26ANALYZINGTHEINCOMESTATEMENT...........................30THESTATEMENTOFCHANGESINSHAREHOLDERS’EQUITY.............36THESTATEMENTOFCASHFLOWS.............................39ADDITIONALDISCLOSURESANDAUDITREPORTS...................40THELONGVIEW.......................................42SELECTINGSTOCKS......................................43GLOSSARYOFSELECTEDTERMS..............................44INTRODUCTIONKnown“fromWallStreettoMainStreet”—andworldwide—MerrillLynchisagloballeaderinthefinancialservicesindustry.Asapublicservice,MerrillLynchwantstosharesomeofitsexpertisein,andknowledgeof,financialreportingthroughthisbooklet.Wehopethisbookletwillserveasavaluableresourcetohelpreaderslearnhowtoreadandanalyzeacompany’sannualreport.Throughit,readerscanlearnthatanannualreportisnotjustajumbleofnumbersandmind-numbingdata.Readwithunderstandingandanalyticalinsight,thenumbersanddatainanannualreportcantellaninteresting,meaningfulandfascinatingstory.TABLEOFCONTENTSHOWTOREADAFINANCIALREPORT1GOALSOFTHISBOOKLETAnannualreportisunfamiliarterraintomanypeople.Forthosewhoarenotaccountants,analystsorfinancialplanners,thisbookletcanhelpthemtobetterunder-standsuchreportsandpossiblybecomemoreinformedinvestors.Thisbookletwaswrittenanddesignedtohelpeducateandguideitsreaderssotheymight:nBetterunderstandthedataincludedinfinancialreportsandhowtoanalyzeit.nLearnmoreaboutcompaniesthatofferemploymentorprovideinvestmentopportunities.Agoodstartingpointforachievingthesegoalsistobecomefamiliarwiththemaincomponentsofacompany’sannualreport.PleaseNote:Highlightedthroughoutthisbookletarekeyselectedtermsanddefini-tionsasareferenceforreaders.SeealsotheGlossaryofSelectedTermsinthebackofthisbooklet.COMPONENTSOFANANNUALREPORTMostannualreportshavethreesections:(1)TheLettertoShareholders,(2)theBusinessReviewand(3)theFinancialReview.Eachsectionservesauniquefunction:nTheLettertoShareholdersgivesabroadoverviewofthecompany’sbusinessandfinancialperformance.nTheBusinessReviewsummarizesacompany’srecentdevelopments,trendsandobjectives.nTheFinancialReviewpresentsacompany’sbusinessperformanceindollartermsandconsistsofthe“Management’sDiscussionandAnalysis”and“AuditedFinancialStatements.”Itmayalsocontainsupplementalfinancialinformation.InManagement’sDiscussionandAnalysis(MD&A),acompany’smanagementexplainsallsignificantchangesfromyeartoyearinthefinancialstatements.Althoughpresentedmainlyinnarrativeformat,theMD&Amayalsoincludechartsandgraphshighlightingtheyear-to-yearchanges.Thecompany’soperatingresults,financialpositionandcashflowsarenumericallycapturedandpresentedintheauditedfinancialstatements.Thefinancialstatementsgenerallyconsistofthebalancesheet,incomestatement,statementofchangesinshareholders’equity,statementofcashflowsandfootnotes.Theannualfinancialstatementsusuallyareaccompaniedbyanindepen-dentauditor’sreport(whichiswhytheyarecalled“audited”financialstatements).Anauditisasystematicexaminationofacompany’sfinancialstatements;itistypicallyundertakenbyaCertifiedPublicAccountant(CPA).Theauditor’sreportatteststowhetherthefinancialreportsarepresentedfairlyinkeepingwithgenerallyacceptedaccountingprinciples,knownasGAAPforshort.Followingisabriefdescriptionoroverviewofthebasicfinancialstatements,includingthefootnotes:TheBalanceSheetThebalancesheetportraysthefinancialpositionofthecompanybyshowingwhatthecompanyownsandwhatitowesatthereportdate.Thebalancesheetmaybethoughtofasasnapshot,sinceitreportsthecompany’sfinancialpositionataspecificpointintime.2TheIncomeStatementOntheotherhand,theincomestatementcanbethoughtofmorelikeamotionpic-ture,sinceitreportsonhowacompanyperformedduringtheperiod(s)presentedandshowswhetherthatcompany’sopera-tionshaveresultedinaprofitorloss.TheStatementofChangesinShareholders’EquityThestatementofchangesinshareholders’equityreconcilestheactivityintheequitysectionofthebalancesheetfromperiodtoperiod.Generally,changesinsharehold-ers’equityresultfromcompanyprofitsorlosses,dividendsand/orstockissuances.(Dividendsarepaymentstoshareholderstocompensatethemfortheirinvestment.)TheStatementofCashFlowsThestatementofcashflowsreportsonthecompany’scashmovementsduringtheperiod(s)separatingthembyoperating,investingandfinancingactivities.TheFootnotesThefootnotesprovidemoredetailedinfor-mationaboutthefinancialstatements.Thisbookletwillfocusonthebasicfinancialstatements,describedabove,andtherelatedfootnotes.Itwillalsoincludesomeexamplesofmethodsthatinvestorscanusetoanalyzethebasicfinancialstatementsingreaterdetail.Additionally,toillustratehowthesecon-ceptsapplytoahypothetical,butrealisticbusiness,thisbookletwillpresentandanalyzethefinancialstatementsofamodelcompany.AMODELCOMPANYCALLED“