WHY SHOULD THE BALANCE SHEET BE IMPORTANT TO YOU?

As an investor, you need to ensure that the company you have invested in has good potential for future growth, and will yield good returns. The balance sheet helps you get answers to questions like:

• Will the firm meet its financial obligations?
• How much funds have already been invested in this company?
• Is the company overly indebted?
• What are the different assets that the company has purchased with its financing?
• Is the company using its funds efficiently?

These are just a few of the many relevant questions you can answer by studying the balance sheet. The balance sheet provides a diligent investor with many clues to a firm's future performance.

HOW DO I OBTAIN AN ANNUAL REPORT?

Annual reports are mailed automatically to all shareholders on record. If you wish to obtain the annual report about a company in which you do not own shares, you can call its public relations (or shareholder relations) department. You may also look at the company website, or search the internet; there are several sources on the internet providing such information on public companies.

All listed companies are required to submit the financial reports available in the public domain as per SEBI regulations. These may, hence, also be available with the two exchanges – Bombay Stock Exchange and National Stock Exchange.

HOW DO YOU USE EARNINGS INFORMATION TO MAKE AN INVESTMENT DECISION?

Your investment goals, determine how you use information about company earnings. If you are an income investor – one interested in earning immediate income from your investments – you probably want to invest in a company that is paying high dividends.

If you have a long-term investment strategy, dividends may not be as important to you. In this case, you may choose to compare company financial, which indicates whether a company is oriented for income, growth, or a bit of both. By comparing the financials for different companies in the same industry, you can find characteristics best suited to your investment goals.

A convenient way to compare companies is through Earnings per Share (EPS). It represents the net profit divided by the number of outstanding shares of stock.

When you compare the EPS of different companies, be sure to consider the following:

• Companies with higher earnings are financially stronger than companies with lower earnings.
• Companies that reinvest their earnings may pay low or no dividends, but may be poised for growth.
• Companies with lower earnings and higher research and development costs may be on the brink of either a breakthrough or a disaster, making them a risky proposition.
• Companies with higher earnings, lower costs and lower shareholder equity, might go in for a merger.