A revolution in corporate annual reports is apparent to shareholders who are receiving fewer traditional reports in 2007.
More than half of 200 companies responding to a survey by the National Investor Relations Institute said they are simply wrapping their annual 10-K regulatory filing in a few pages of additional information and making it their annual report.
Less than 1 in 6 companies in 2002 was taking this approach that issues reports faster and cheaper.
This trend acknowledges that what really counts these days is financial information for institutional and individual investors, plus clear compliance with Securities and Exchange Commission rules.
Considered along with proxy statements to shareholders that now must include a "total compensation" column for top corporate executives, it is obvious that times have changed. Fluff is expendable.
To help investors decipher its financials Constellation Energy Group in Baltimore includes a seven-page "Understanding our Form 10-K" preface to the 10-K within its annual report.
"Because of Sarbanes-Oxley and events leading to its passage, there's greater awareness of the importance of transparency in financial reporting," said Debbie Beck, who puts together Constellation's report. "There's greater expectation of 'plain English' when talking about business operations and strategy."
Whether bare-bones or multicolor lavish, an annual report should be studied for its look into the business that includes products, properties, legal proceedings and financial statements for the previous fiscal year. Companies include more details than ever, but you must still read between the lines.
After examining small-print footnotes, where blockbuster information is often tucked away, look at the auditor's report to see whether it qualifies its approval of the company statements.
Management discussion and analysis should be candid about the past, present and future.
Go over financial statements that track sales, profit, spending on research and development, inventory and debt levels over time. Be sure you fully understand company brands and subsidiaries.
"If you are a value-oriented investor looking for a stock trading below the value that it should be, start by looking at the balance sheet," said Dan Noll, director of accounting standards for the American Institute of Certified Public Accountants in New York. "Looking at the book value [assets minus liabilities and intangible assets] per share versus the stock price per share is the starting point for finding a bargain that warrants further investigation."
Other investors should take a different approach.
"If you are a growth investor seeking a stock likely to increase more rapidly in price, focus your attention on the income statement," Noll said. "The first item on an income statement is the company's revenue, and how that number is growing from quarter to quarter -- and from year to year -- helps you to determine how fast the company is growing."
The cash flow statement is important for all investors because growing cash flow is a positive trend in a company's ability to do business now and in the future, he said.
A report's sales and marketing information define where it actually makes money. The long-term summary of financial figures, the list of directors and officers, and the stock price history are other important considerations in where the company has been and is headed.
Even the wrap approach to annual reports is likely to be supplanted by the next big thing.
"The next big change will be the issue of electronic [online] reports," said Linda Kelleher, interim chief executive of the National Investor Relations Institute. "The SEC only requires the 10-K, and it has been the exchanges that have required printed reports."
Andrew Leckey writes for Tribune Media Services.