I have always believed that a company’s annual report is the single best piece of information that an investor in a business can get their hands on. It has always surprised me how underused they are. Yet they are packed full of useful information and with some simple bits of number crunching a diligent investor can learn a great deal about a company and improve their investing decisions. Over the next few weeks, I am going to show you how you can do this and will start by looking at income statements.
When you start looking at a company, I always think it’s a good idea to look at the numbers in the financial statements first and build up your own picture of it. This encourages independent and critical thinking, which is so important to investing and stops you from being influenced by what the management has to say. You should read that later, and see whether the view you have built up by looking at the numbers matches with theirs. Sometimes it will not.
To keep things as simple as possible, I am going to use the annual report of one company for most of the examples. In this case, I have chosen Marston’s (MARS), which makes its money from brewing beer, owning and managing pubs and hotels and renting out pubs to tenanted landlords.