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Article Excerpt
Before the 20th century, many companies were small, family-owned, and managed by family members. The boss was the owner.
Then, along came public ownership. Companies sold shares in their enterprises to outsiders as a way of raising money for expansion. The owners (shareholders) then hired managers to look after the operation. That's the way most corporations are run today--by a Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer (COO), a host of Vice Presidents, and many others lower down the pecking order.
These people generally do the day-to-day running of the corporation. They keep the owners of the business informed through regular meetings and reports. The most important communication is the annual report.
Public companies are required by law to publish annual reports. The report includes a balance sheet showing income and expenses and the general financial state of affairs for the company. An accounting firm from outside, called an auditor, goes over the numbers to make sure they are accurate. The management of the corporation also writes a commentary detailing the year's performance and outlining where they think they are headed in the future.
Skilled investors, the people who buy shares in corporations, carefully read these annual reports or seek the advice of experts who have read them. When somebody buys shares in a corporation they are taking a risk. Most shareholders know that. They measure the level of risk against the rewards they expect in the form of profit. If the balance looks good they invest. The corporation's annual reports are a vital tool for helping people decide whether or not to buy shares in this or that business.
What investors don't expect in the annual report is lies; a bit of...
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