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The review of operations section consists of prose, graphs and pictures. Usually, it makes up a large part of the annual report. However, undue attention should not be placed upon the management’s discussion of operations. It is important to remember that this section is frequently created with the assistance of professional public relations companies. It can be designed to draw the reader’s attention away from other less positive sections of the annual report such as a company’s financial statements. It is therefore important for the reader to understand that the review of operations should be considered, with a grain of salt, as part of the entire annual report.
If the review of operations focuses on the future and opposed to the present, does not discuss the company’s prognostications from previous annual reports, or highlights such things as employee loyalty, the reader should think twice and further investigation is required. For example, does the failure to discuss a business or product line that was highlighted in last year’s annual report mean that a write off associated therewith is on the horizon?
If an investment is being proposed to you by your stock broker, you should ask to see a copy of the company’s most recent annual report or you can review a copy of the same by looking up the particular company’s annual report on the SEC website.
Please keep in mind that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should consult a qualified professional.Contact Us
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