Public companies are required to file regular reports with the federal Securities and Exchange Commission which reveal considerable information about their operations and policies. Check the following when you begin your review.
The Annual Report
The annual report is the most basic filing a public company makes. Public companies are required to submit a detailed report of their financial results (profit or loss) each year through the annual, which is also known as a Form 10k. Often the letter from the chairman or president that accompanies the financial filing will speak in glowing terms of their profits or varnish a poor performance. Look to the footnotes section. There you'll find more revealing information about the firm's operations.
The Proxy
The proxy reveals salaries and benefits paid to top executives. For socially responsible investors it's a useful document because outlandish executive compensation can be a telling sign of company operations.
The Prospectus
The prospectus is issued by a company when it is trying to raise money, such as through a stock sale. It provides information on the company, its top executives and how the new capital will be spent. Companies are also required to reveal the risks for investors, which further illuminates how they are conducting business.
Form 10Q
The 10Q is a quarterly update on operations that public companies must file. It describes company operations during the prior three months, results and any events that occurred that could impact shareholder value.
Insider Trading
Are the managers of a company quietly selling their stock? If so, investors should know why. When corporate insiders - officers, directors, and employees - buy and sell stock in their own companies they must report their trades to the SEC. The reasons could be perfectly innocent, such as needing cash to pay for college or the purchase of a home. But if insiders buy or sell shares ahead of a news announcement that will impact the stock price, for example, that's illegal because they did so using knowledge that wasn't available to other stockholders.