Tuesday, August 25, 2009

Corporate financial statements for dummies

Your publisher just laid off the entire financial reporting staff, and you, thrilled to keep your job but dreading dealing with numbers, are told to write a brief story, just a few column inches, based on a corporation's quarterly or annual report. The very kind that consists largely of columns of mind-numbing statistics, strange terms, densely packed data--everything you hate about financial information.

Don't fret, truly. It's much easier than you think.

First, get the data. If you can't get the latest annual (or quarterly) report at the company's website, go to the Securities and Exchange Commission website, and click on: Search for Company Filings. When the window opens, type in the name of the company (let's use The Home Depot for this example). A window will open with the company's name. Sometimes several companies have similar names, and they are listed here too; make sure you click on the correct one.

Another window will open, showing all the reports filed by the company. Look for the report labeled "10-K," and click on "documents." (If you're doing a quarterly report story, look for 4-Q.) In the next window, click on the first item, which will open the 10-K, otherwise known as the annual report.

The 10-K document opens. Don't bother reading the text. Just scroll down to a heading that says something like "Selected Financial Data" or "Consolidated Statement of Finances."

A financial page will appear. Don't panic: All you need are a few numbers: Net sales or revenue for the current year and the year before; and net income or earnings, also known as profit, for the two years.

These will give you a snapshot of how the company fared during the year compared with the year before. They will show you whether it took in more or fewer dollars this year through its sales, and whether it made a higher or lower profit--or even suffered a loss. If you can compute a percentage change between the two years for sales and profit--another very easy procedure--so much the better.

Want to appear more sophisticated? Check out the line that says "Operating expenses" for the two years. That will show you if the firm's expenses went up or down over the year. In other words, is the firm doing a good job controlling expenses, or a lousy job? Then you can use your journalistic skills to ask an appropriate company executive to explain why expenses went up, or down.

Executives are wont to complain that the net income or profit figure is somewhat misleading, since it has been lowered by things over which they have no control, such as taxes and interest payments. They say the real measure of how their company is doing is their "Operating income," which doesn't include taxes and interest. That's the figure, they say, that reflects how the company's own operations generate profit (or loss).

Okay, so you can use that figure in your story as well, but if you do, be sure to include it later on, rather than in the first paragraph: your primary audience is not the executives, but your readers: they want to know how the firm is doing overall, taxes and interest and everything else included.

1 comment:

Patti said...

Hi, Nathan,
This was very interesting. Have you thought about linking up with a university center for writing? Many have them and I'm sure business students would benefit from your experience. Just a thought. Patti A.