Educate Yourself - It's 10-K Season

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It's 10-K Season
by Charles B. Carlson, CFA
Dow Theory Forecasts

If the Enron debacle has taught investors anything, it is this - smart investing is all about doing your homework.

Indeed, it used to be the case in the 1980s and 1990s that investors could buy almost any stock, and that stock would increase in value.

Those days are over. Today's successful investor will be the one who takes the time to understand the companies he or she is buying, examines with a critical eye financial statements, and develops a game plan for dumping or buying more of the stock.

But where can investors go to get news-you-can-use on companies? A great source is the firm's 10-K report.

The 10-K report is a lengthy financial report filed by companies at the end of their fiscal year. This report is similar to the company's glossy annual report, except it doesn't have the gloss. However, 10-K reports are must reading for investors who want to get a handle on a company and its financial picture.

An important part of all 10-K reports are the "Notes to Financial Statements." These "notes" provide a bounty of important information, including information on revenue recognition, lawsuits, related business entities, and debt structure. Just by reading these "notes," an investor would get a much better handle on the risks of investing in that particular company.

Since most companies have a fiscal year that ends in December, 10-K reports for 2001 are coming out in full force these days. The best place to obtain a company 10-K report is the SEC's Web site - www.sec.gov

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