Where to find story ideas in annual reports
If you are planning on writing about business, you will need financial information about the companies you are covering. Public companies file a 10-K, an annual overview of a company's business and financial condition. It contains extensive background and financial information, including audited financial statements. It is also one of the most difficult documents to read. (Don't confuse the 10-K with the annual report, a glossy document released by the company to shareholders.)
Here are some places in the 10-K to find story ideas:
- Management discussion. Examine this carefully. You can find information about products, divisions, acquisitions and divestitures, and restructurings during the past fiscal year.
- Management changes. Under management discussion, the company will list the members of the management team. Pay attention to how long the various executives have been at the firm (high turnover can indicate a problem) and their career experience. How long have they been running this company or a similar business in the same industry?
- Annual audit. Toward the back of every company's 10-K form, you will find an annual financial statement comparing the most recent year's financial statements to the previous year's. The financial statements are audited—they have been prepared and reviewed by a certified public accountant according to the Generally Accepted Accounting Principles or GAAP.
- The auditors. CPAs are hired by the company and paid by the company. This is an accepted practice, but it raises an inherent conflict of interest. See if the company recently changed auditors. If there has been a change in the audit firm, find out why. There is almost always a reason, and it generally has little to do with the fees charged by the firm. Sometimes, companies have a disagreement about accounting policies, and the accounting firm decides to resign. Keep in mind that a review by an accounting firm only means that the firm reviewed whatever records were provided by the company. It does not mean that every book, every record or every transaction was reviewed. So, if a company is deliberately trying to fool the accountants, the accountants are probably not to blame if fraud wasn't uncovered.
- The opinion of the accountants. Note whether the company got a "clean" or a "qualified" opinion by the accountants as part of the audit. If the audit is free of errors, the accountants will state this fact. If not, the accountants will state what problems they found and issue a qualified opinion.
Taken from Financial Literacy Basics: Producing Better Business Stories, a self-directed course by Mark Tatge at Poynter NewsU.
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