Read an Annual Report
If you read an annual report of an interested stock, it will be one of the most thorough analysis of a company you will find. Most annual reports are filled with beautiful pictures and testimonies from satisfied customers, but this does not deter from the real purpose of the report, which is to give an objective and thorough overview of the company. The annual report is a valuable and necessary analysis tool for both current and potential investors interested in measuring value and risk of a company. The Securities and Exchange Commission (SEC) requires companies to send investors an annual report every year.
What do annual stock reports include?
- A five-year comparison of selected financial data;
- A consolidated Balance Sheet, an Income Statement, a Cash Flow Statement, and a statement of changes in stockholders’ equity for the past two years;
- A management discussion and analysis (MD&A) of results and changes over the last two years; and
- Notes to the financial statements that describe accounting policies as well as providing more detailed information in such areas as taxes, pension plans, business segment and geographical breakdowns, related party transactions, and future financial obligations.
- Major aspects of the report an investor should review are the-Income Statement, Cash Flow Statement, and Balance Sheet.
Where should you begin your analysis and research with an annual report? To start, look at:
- Sales, earnings, and various profit margins (from the Income Statement);
- Debt levels and the composition of current assets (from the Balance Sheet); and
- Actual cash flow versus reported income (from the Cash Flow and Income Statements).
- Lawsuits and complaints about the company
The annual report is the single most complete and useful analysis of a public company available.
How do you acquire an annual report?
- Investors holding individual stocks are automatically sent an annual report of the companies they own shares in, every year.
You can call the toll-free number of investor relations department of a company and request an annual report.
- You can download an annual report from the website of some companies.
- Edgar (SEC/Edgar), the financial database of SEC filings, contains the required annual SEC filings—the 10-K report—for most U.S. companies. Search: www.sec.gov/edgar/searchedgar/companysearch.html
The annual report is probably not only the most objective view of a company you will obtain, but it also contains valuable information to help predict a companies future.
The term “microcap stock” applies to companies with low or “micro” capitalizations, meaning the total value of the company’s stock. Microcap companies typically have limited assets. For example, in recent cases where the SEC suspended trading in microcap stocks, the average company had only $6 million in net tangible assets–and nearly half had less than $1.25 million. Microcap stocks tend to be low priced and trade in low volumes.
Where Do Microcap Stocks trade?
Many microcap stocks trade in the “over-the-counter” (OTC) market and are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the “Pink Sheets.”
>OTC Bulletin Board: The OTCBB is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many OTC securities that are not listed on the Nasdaq Stock Market or a national securities exchange. Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities. Although the NASD oversees the OTCBB, the OTCBB is not part of the Nasdaq Stock Market. Fraudsters often claim that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it is.
>The “Pink Sheets”: The Pink Sheets–named for the color of paper they’ve historically been printed on–are a weekly publication of a company called the National Quotation Bureau. They are electronically updated on a daily basis. Brokers who subscribe to the Pink Sheets can find out the names and telephone numbers of the “market makers” in various OTC stocks–meaning the brokers who commit to buying and selling those OTC securities. Unless your broker has the Pink Sheets or you contact the market makers directly, you’ll have a difficult time finding price information for most stocks that are quoted in the Pink Sheets.
How Are Microcap Stocks Different From Other Stocks?
Lack of Public Information: The biggest difference between a microcap stock and other stocks is the amount of reliable, publicly available information about the company. Larger public companies file reports with the SEC that any investor can get for free from the SEC’s Web site. Professional stock analysts regularly research and write about larger public companies, and it’s easy to find their stock prices in the newspaper. In contrast, information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes. The SEC has proposed new rule changes that will increase the amount of information brokers must gather about microcap companies before quoting prices for their stocks in the OTC market.
No Minimum Listing Standards: Companies that trade their stocks on major exchanges and in the Nasdaq Stock Market must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies on the OTCBB or the Pink Sheets do not have to meet any minimum standards.
Risk: While all investments involve risk, microcap stocks are among the most risky. Many microcap companies tend to be new and have no proven track record. Some of these companies have no assets or operations. Others have products and services that are still in development or have yet to be tested in the market.
I have actually sold a couple of homes as a “for sale by owner” seller. So, it is possible to do a “sell your home by owner” home sell, but It wasn’t as easy as I thought it would be. But I made the decision based on the fact that I had not owned the homes long enough to generate substantial equity to pay a real estate commission. These are the things I learned from my actual experience, my research, talking to real estate agents, and talking to others who had sold a home. I spoke with two friends who are ex-real estate agents, and they helped me quite a bit. I also took an appraisal course many years ago in anticipation of starting a real estate appraisal business. I did not start the business, but I learned a lot about appraising homes.
First of all, expect to be bombarded by real agents eager to list your home, when they see your, “For Sale by Owner” sign. They will contact you over and over hoping that you will become frustrated with the whole process, throw up your hands and say, “where is that pesky real estate agent? I’m listing my house with her or him, yesterday!” Unfortunately, sometimes you will feel like that, but don’t give up too soon.
The following information should be helpful:
1. Fix up your home to make it presentable to sell. That includes electrical and plumbing in tip-top shape, clean carpet, clean walls, clean doors, an attractive front door, and well-groomed landscaping, and maintenance painting, just to name a few.
2. Then you need to decide how much to sell your house for. If your asking price is too high, your home could stay on the market a long time. If your asking price is too low you may lose money you deserve. There are several ways to find out the right sales price. If the homes in your neighborhood are very similar, i.e. square footage, number of bedrooms (bathrooms), and similar size yard, you can use the recent sales from the last two homes similar to yours, in your immediate neighborhood. It gets a bit more complicated when the homes are all different, but appraisers use a similar method. You will have to find homes with your similar square footage, number of bedrooms, number of bathrooms, and if the home is on a lake, gulf course or ocean. You can also pay for a sales appraisal, use your local yellow pages for a listing of real estate appraisers. The next option is to check city or county records. Just call your local city records office and ask them where you can find information on the most recent home sales in your area. Verify which of these homes are similar to yours and use those comparisons to price your home.
3. Then there are the forms, those dreaded forms! They are dreaded but necessary for the legal transfer of your property to another person. You will need legal real estate sales and disclosure documents for your home sale. You can get these documents from a title company or you can pay a real estate lawyer to do the work for you. The real estate lawyer will provide you with the documents and fill them out correctly, for no more than an hourly fee. Verify his/her fee, the time it will take, and agree on a fee before he/she fills out the documents.
4. Let the buyer know that he/she can pay for an independent inspection of your home, and put it in writing. The new buyer can have an inspection for plumbing, electrical, and structural soundness as well as other things. To be on the safe side, I paid for an independent inspection on one of my homes, I had several things fixed as a result, before I sold the home.
5. Let them know that they need to choose a mortgage company, you can also talk to mortgage companies up front. Both of the buyers in my case had never purchased a home. So, I did some research on the best mortgage companies in the area and gave them several to choose from, this just helped to speed up the process. The mortgage company gave them title companies to choose from or they can search for their own title company. For safety purposes, you could have the person go to your mortgage company of choice and get pre-qualified, before you show your home. This way you will know, who the person is, and that they are serious about purchasing your home.
6. Talk to escrow companies before your put your home up for sale, (in the case of fee simple states-talk to a title company or real estate lawyer for closing).
7. Now let’s get back to those pesky real estate agents. There may be an aggressive real estate agent or two who will actually present you a buyer. If that agent is willing to take 3 or 4%, which very few actually can, and they have a buyer, then you may want to talk. The problem you may experience is trying to negotiate with an experienced real estate agent, they will most likely try to get you to reduce your price for their buyer. Make sure you add up your cost, 4% to the realtor, fixing up the home for sale, your mortgage sellers cost (sellers usually pay around 2%), and your moving cost. Do you have enough equity in your home to pay all of these costs and still have a substantial amount to put down on another home? Most homeowners who sale their own home, do so because they don’t have enough equity to pay a real estate agents cost of 6 or 7%. So, don’t let an experienced real estate agent come along and talk you into decreasing the price of your home, and giving them 3 or 4% real estate commission, in that case you could have hired a real estate agent to do everything to began with, and the agent could get full price for your home.
8. Keep yourself safe. Consider “for sale by owner” only when you can’t justify the real estate agents commission (6-7% of sale cost). Take appointments from interested buyers, get caller ID and other information up front. Ask lots of questions on the phone. Get their name, address, and employment before you give them an appointment. Ask to see an ID before they look.