How to Use Annual Report

There are many steps in calculating the fair value of a company. However, before we even do that, it is imperative to know how a company earns its profit. Does it do that by selling to consumers? licensing its technology to other companies? or extracting natural resources from the ground?

The sensible way to do it is by reading the company’s annual report. What is an annual report? Annual report is yearly publication by public companies to better inform investor about the company’s line of business. Annual report gives investors a glance of the company’s line of business, financial health as well as management’s strategies for doing business.

Let’s look at CNET Networks Inc. The company trades in the NASDAQ market with symbol: CNET. What does CNET do? I know CNET owns cnet.com. But do you know that it also owns download.com, MP3.com, ZDnet.com and News.com ? How do I know that? Yep, you guess it. CNET’s Annual Report will gives you all that.

From CNET’s annual report, we can do a little digging for CNET’s internet traffic. As of August 27th 2005, these websites of CNET attracts 3 % of all internet traffic. Pretty impressive, considering that Google holds 23% of all internet traffic. On April 2005, Google had 78.6 million unique visitors. By comparing this metric, we might have an idea CNET’s revenue potential for the month of August. I will not go into that but this shows how useful reading CNET’s annual report is. Reading an annual report serves as the first step towards investing in a particular company.

How do we obtain annual report? There are several sources for this. First is the companies own website. You are interested in knowing more about CNET Networks? You can get the annual report by going to http://www.cnet.com and go to its shareholder relation. After several clicks, you can then download the annual report.

Or … you can go to some websites that offer complete annual report for a number of different companies in alphabetical order. Our website is one of them. Admittedly, while having hundreds of annual reports in one place is convenient, it is not as thorough as what the company’s own website has to say.

Growth and Value: What’s the Difference?

While the majority of American investors understand the importance of diversifying across growth and value investments, few are able to achieve a passing grade on a test of their knowledge of the differences between the two, according to a new American Century Investments survey.

Test your knowledge with the Growth & Value IQ quiz below:

1. Which best describes a growth stock?

a) Stock that offers guaranteed rate of growth tied to consumer price index.

b) Stock in a company specializing in agriculture, lumber, landscaping, and other organic products.

c) A stock in a company demonstrating better than average profit and earnings gains.

d) All of the above.

2. Which best describes a value stock?

a) Stock in fast-growing company specializing in high-value, low-cost products, like a discount retailer.

b) Stock in a company specializing in valuable goods, like precious metals and jewelry.

c) Stock that has a low price-to-book ratio.

d) All of the above.

3. Which statement is true?

a) Value stocks outperformed growth stocks between 1927 and 2001.

b) Smaller company value stocks outperformed larger company value stocks between 1927 and 2001.

c) Maintaining a portfolio with a combination of growth and value stocks generally is considered a prudent investment approach.

d) All of the above.

4. During periods of strong economic expansion, which fund generally performs better?

a) Growth.

b) Value.

c) Neither.

d) Both.

5. Generally speaking, value funds outpaced growth funds in 2000 and 2001.

a) True.

b) False.

6. Generally speaking, growth funds outpaced value funds during the 1990s.

a) True.

b) False.

7. Which type of fund is more likely to invest in stocks paying a significant dividend?

a) Growth.

b) Value.

c) Neither.

d) Both.

8. Higher price-to-earnings ratios normally would be associated with stocks in which type of mutual fund?

a) Growth.

b) Value.

c) Neither.

d) Both.

9. What kind of stock is described in this example: “Established baked-goods company with strong balance sheet and good cash flow experiencing temporary drop in reaction to changes in senior management.”

a) Growth.

b) Value.

c) Neither.

10. What kind of stock is described in this example: “Software company, enjoying steady sales increases, is in the process of rolling out an eagerly anticipated update to a popular software application.”

a) Growth.

b) Value.

c) Neither.

Key: 1(c); 2(c); 3(d); 4(a); 5(a); 6(a); 7(b); 8(a); 9(b); 10(a).  – NU