Growing Rich - Arabictrader.com

Rule 10
READ THE FINE PRINT
Now that you know what fundamental characteristics to look for
when selecting growth stocks, let’s talk about the steps you should
follow once you’ve identified a specific company you want to buy.
The first thing you should do is call the company’s investor relations
department to order a copy of the latest annual and quarterly reports,
along with any other research material they can provide you. These
documents will tell you more about the company’s past, present, and
future. They also contain all of the pertinent balance sheets and other
financial information you need to determine how fiscally strong the
business is. Other items you should get your hands on include the
latest proxy statement, along with forms 10-Q and 10-K, formal
documents that must be filed by every public company annually with
the Securities and Exchange Commission.
ANALYZING ANNUAL REPORTS
Each publicly traded company is required to send out an annual
report to shareholders and anyone else who asks for one. Sometimes
these are rich, glossy, colorful productions, which cost several dollars
apiece to produce. Other times, they are stripped-down, black-andwhite
briefings that consist mostly of the form 10-K filing and little
else. In either case, they are usually prepared by investor relations
experts, who live to put a positive spin on the companies they represent.
Given this obvious bias, how should you, as an investor, use annual
reports, and what must you look for? To begin with, Shelby
Davis says, you must keep an eye out for two things that will let you
know whether a company is a good investment: the quality of its
business and what price you are being asked to pay for it.
“If you determine it is a good investment, what you should do is
turn to the back of the report and pore over the financials,” he suggests.
“Look at the return on assets and equity over a 10- or 20-year