If you know what to look for, the annual report is a uniquely valuable resource.

If you know what to look for, the annual report is a uniquely valuable resource. Reading an annual report may not sound very exciting, and let's be real: it isn't. But whether you're looking for a job or looking to invest, a company's annual report is a uniquely valuable resource because it provides you with a snapshot of an organization from the inside. And if you know what to look for, there's much to learn from the result.

If you know what to look for, the annual report is a uniquely valuable resource. Reading an annual report may not sound very exciting, and let's be real: it isn't. But whether you're looking for a job or looking to invest, a company's annual report is a uniquely valuable resource because it provides you with a snapshot of an organization from the inside. And if you know what to look for, there's much to learn from the result. Getting the basics, such as what the company does and what its plans are, is the easy part. Background information can be found on the first spread (inside front cover, page one and shareholder letter) and Operations Review. Other, more detailed information, is a little more difficult to decipher. As an employee, here's what you should look for in your attempt to assess the financial health of a company: A review by the CFO based on the company's financial data. The important part of this section is the 5-year or 10-year summary because it puts the company's financial data into a comparing framework. Combined with the financial statement, you can get a company's financial snapshot. The Financial Statement gives you the key numbers on how the company did the previous year. The Balance Sheet and Income Statements are the most important here. The Balance Sheet answers the question "How rich is the company?" It provides a snapshot of how the company stands at a certain time. Figures to look at here are: Current Assets --the liquid value of the company Liabilities --debts due Current Liabilities --debts due in one year (the company would pay them out of current assets) Net Working Capital --current assets-current liabilities (a low number here means the company is in bad shape) Stockholder's Equity --total assets-total liabilities (you want this to grow) This statement answers the question "How much did the company earn?" It contains all revenue earned by the company minus all expenses incurred in generating the revenue. Important figures to note are Dividends and Net Earnings Per Share. The latter indicates how much each single share of stock earned in that year. Wall Street closely watches this number and bases its ratings on it. Another key index is the P/E Ratio, or the price per share divided by the earnings generated by that share. This will tell you if the company is making money (where revenue) and if Wall Street believes the company has potential for rapid growth. Stable, blue chip companies like Ford or IBM have P/E ratios under 25. The high-tech industry ratios vary considerably. An AOL or Netscape have P/E ratios of zero; Microsoft, on the other hand, is over 50. When reviewing an annual report bear in mind that information reduces risk. The more you know about the company as a whole, the better off you are.