Thoughts on Flipping through a Company’s Annual Report

Two weeks ago I wrote that voting shares was a great opportunity for shareholders to teach themselves a little about the companies whose stock they hold. One way to do this is to look through the proxy vote website to see what the company has to say about their preferred positions. Another way is to look through the company’s annual report.

So I picked up my fancy Duke Energy annual report and started thinking about how I read it.

1) This report is pretty.

While some publicly held companies send their stockholders copies of SEC annual filings printed on newsprint, most like to spend company money on shiny pretty company propaganda. As a stockholder, I prefer the straightforward no-frills approach since it uses less company money to print and mail. I can’t deny that the colorful ones are a little easier to read, particularly if you don’t speak SECese.

2) Wait! This says it’s the 2015 Annual Report! Am I looking at the wrong thing?

No, this is the report that summarizes what happened to the company in 2015. Once you start looking through it, you’ll note that it’s dated March 2016 and that all of the financials are shown through December 31, 2015.

3) This is a lot of corporate speak.

Yes, it is. You’re going to have to wade through it to see what’s important and what isn’t. You may need to use alternate news sources. Understand that the annual report is essentially company PR with numbers, not unbiased reporting.

4) So what’s important?

Start with the Financial Highlights. How does Net Income (particularly Net Income attributable to the company) compare to last year? How do Earnings per Share compare? What about operating revenues? Higher is better., and in Duke’s case, these are all higher or similar to the previous year.

I look at assets, debt, and shareholder equity, If assets are increasing, is equity increasing too (meaning the company book value) or just liabilities (what the company owes), or both? Again, if I look at my example, assets are up slightly, and equity is down slightly. That means the company is borrowing money to finance more assets.

What does the company think is important? They start off with telling me the businesses they are getting out of (South American hydroelectric plants and Midwest commercial power) and what they are acquiring (Piedmont Natural Gas), and what they are working on (gas pipeline projects and some solar projects). I’m happy enough that Duke is pursuing renewable energy, but notice that it was mentioned last. Duke seems to feel the natural gas business is the big news for investors, and short term they are probably right.

The report moves on to dividends and returns. A lot of investors choose utility companies for safe and secure dividends and capital appreciation, and Duke’s earnings per share were lower than last year. So was the entire utility business, according to the report.  The dividend they paid was up, though, and that’s attractive.

Finally, the company talks about what a good corporate citizen they are, with more safety, better customer service and a listing of their community activities. They try to reassure their investors that the company has taken care of the coal ash problem. They mention natural gas again as a means of reducing emissions. And….we’re back to corporate babble.

5) This part’s not so shiny.

It’s the SEC filing, so it’s got a lot more legalese. It also has some standard information that can be useful.

If we start with the risk factors, there’s at least some concern that regulators won’t let the merger with Piedmont Natural Gas go through. A quick search indicates that the merger was approved in Tennessee and will go before the North Carolina Board in July.  There is also at least some mention that the Dan River coal ash basin release is not completely settled.

Since the risk factors try to mention every possible risk, it’s not unusual that there is a different spin than in the shiny parts. It’s always good to see what they say in both places. There’s also a list of major litigation that’s good to review.

6) Words, words, words, Numbers, words.

Numbers are important; sometimes you need to read the words too. Remember, at times you have to read the words to make sure you understand what the numbers mean.

7) These numbers are the same as in the shiny part, there’s just a lot more of them, right?

Yes. The numbers in the front are the “main” ones, the ones you can find on Yahoo! Finance when you look at the company’s key statistics. The numbers in the audited financials are more specific than the numbers in the shiny part. If you go to the notes to the financials, you can find things like the breakdown of property, plant and equipment and debts.

When I go through the numbers, I’m just looking for anything that looks off or wildly different than previous years. And making sure there’s a reasonable explanation. So when I see that the asset retirement obligations have gone up, I can look and see that about half of those obligations are for nuclear plants and most of the rest concern coal ash. Since I know that coal ash has been in the news a lot in the last year, the increased obligation makes sense, and it might go up yet again this year.

8) What’s the verdict?

Nothing unexpected, which is a good thing. I still feel Duke Energy is a good long-term investment that will generate a solid dividend while remaining at reasonable prices, just as I did when I first purchased my stock in Progress Energy several years ago.

9) Do I really need to do this every time I get one of these things?

It’s probably a good idea to spend an hour or so flipping through the annual report once a year, but there are other ways of staying informed on any individual companies you invest in. Subscribe to a news feed like Seeking Alpha or Yahoo Finance to see research and news on a regular basis. Track the stats or the prices. Skim the SEC filings. Watch business news. You can even listen in on conference calls.

The point is if you are going to invest in stocks rather than funds, do something to stay informed, even if it’s just once a year.

Image courtesy of hywards at, with changes

*Part of Financially Savvy Saturdays on brokeGIRLrich and a Disease Called Debt *

10 thoughts on “Thoughts on Flipping through a Company’s Annual Report

    • Thanks! I admit I have some more reports to look through, but I definitely learned some stuff (I had paid no attention to the Piedmont Natural Gas merger).

  1. I’m glad you’re writing about this, Emily. We should be interested in the whole company we invest in, not just the gyrations of the stock price.

    I’m going off on a tangent here but your post brought to mind a really good tip for any of your readers who might work in the nonprofit field. Nonprofits are required to file a 990 tax form. The information is public and may be searched for at You just need to set up a free account. The 990 shows you the organization’s financials, including what programs it spends its money on and the salaries of top employees. When job hunting I always checked these to look for stability and large coffers.
    Mrs Groovy recently posted…Can the Junior IRA Be Part of the Future Social Security Infrastructure?My Profile

    • It’s a good idea to see what the charities you donate to spend their money. Guidestar and Charity Navigator are both good sources of information.

    • That’s a nice way of researching a potential employer, and I guess you can track salary spending over time to see if the organization is ramping up, ramping down or remaining stable, since I know that’s a line item.

  2. I try to google the companies I have stock in once in a while to see if they’ve popped up in the news. Once that was how I found out that there was a large merger coming up and it actually increased the worth of my stock by quite a bit.
    Mel @ brokeGIRLrich recently posted…This or ThatMy Profile

    • Nice!

      Usually when a company whose stock i own is picking up another company, I haven’t been too concerned. When the company whose stock I own is being picked up by another, there’s a lot more work to be done since that can mean big management and possibly philosophy changes. I have had to sell a couple of times because I didn’t really have a lot of faith in the acquiring company.

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