and annual report. Everywhere you go to look at key statistics, valuations, analyst recommendations, earnings estimates and more, you can bet that everything you see has been calculated from quarterly and annual reports. These reports are generated by independent accounting firms, so in theory, they are unbiased and investors have a reasonable expectation of truthfulness, although certainly not a guarantee. If a shareholder class action or other similar lawsuit is filed against a company, the only real way to win is to prove material inaccuracies and willful deception in their quarterly and annual reports. In other words, they may not be perfect, but they are the absolute very best we can do. The 10Q and 10K are pretty standard, and very few variants exist. One is the 10QSB and 10KSB that very small companies use. This form is very similar to the regular filing, but contains a little bit less information. Another variant exists among foreign companies that issue stock in the U.S. Because they file quarter, annual and similar reports in their country, they are only required to submit the quarterly or annual information in an 8K or other filing with the SEC. penny stocks. Listed stocks that trade on the NASDAQ, NYSE and AMEX have very strict standards with respect to SEC filings. If they are late, they do not have a whole lot of time before they are delisted. The next step down is the OTC BB, where all stocks quoted on this over the counter exchange are still required to file all reports, but have a bit more flexibility with respect to being late. The Pink Sheets used to be the lowest level, where companies were not required to file at all. Things are changing over at the Pink Sheets, however, as they have recently implemented a sort of voluntary compliance with respect to different levels of timely filing. They have rolled out several new tiers of quality so to speak, providing investors with a bit more transparency. Because of this, many believe that the OTC BB will soon cease to exist. Late and inadequate filings from small companies is primarily a function of two possibilities. The first is that smaller companies have to hire smaller accounting firms, and have less resources available to do so. The other possible function is fraud, whether legal or not. The only way to quickly determine which category a small company may fit into is to read whatever reports they have filed with the SEC. When we look at a quarterly or annual report, we soon begin to realize how much knowledge is available to the average Joe. At the very top, and after reading only a few lines, we learn exactly where the company is located, how to contact them, what time period the report is for and on what time schedule they file, whether or not they are late with any previous filings, whether or not they are a shell company, and exactly how many shares of the companies stock are issued and outstanding as of a specific and recent date. This is all essential information, and we haven't even scratched the surface yet. In part two, we'll examine what key bits of data to pull from the companies Income statements, Balance Sheet and Cash Flow statements, and how to extrapolate that data and tailor it to the particular stock or industry. |
January 20, 2011 PSW Staff |
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