Company Reports Concern All of Us to Some Degree, but How Do I Read Them Correctly?

If you wish to learn facts about a publicly traded company’s business performance on your own, the best way to do that is to visit the corporation’s website. Under the menu heading “Investor Relations” or “Investors”, you’ll find dedicated webpages with relevant documents and information. Conglomerate corporations post investor relations webpages on the group’s website. Investor information on Google, for example, is published on the website of its parent company, Alphabet, and you’ll find the investor relations webpage for Nestlé not on Nestlé Switzerland’s website, but on the group’s website at www.nestle.com. The investor relations section is usually easy to find via the navigation bar or via links at the bottom of the homepage.

English is an officially recognized corporate reporting language in Switzerland. Many companies thus provide certain parts of their reporting only in English. It’s therefore worth knowing the most important financial reporting terminology in English.

Publishing annual and half-year reports is one of the recurring obligations that publicly traded companies listed in Switzerland have to fulfill, and all other stock exchange venues mandate similar reporting requirements. Many large companies also publish quarterly figures.

Information on a company’s assets, financial position, earnings and detailed disclosures on corporate governance form the core content of corporate reporting. Most corporations publish a brief overview of key figures in their company reports. Alongside revenue and net profit, the key figures normally also include EBIT and EBITDA. EBIT stands for earnings before interest and taxes, and EBITDA means earnings before interest, taxes, depreciation, and amortization. EBIT and EBITDA are subtotals on a company’s income statement. They enable inferences to be drawn about a company’s surplus cash flow. However, the cash flow statement should be looked at separately. Additionally, the page also contains other relevant key figures, which may also vary depending on the industry.

For German- or French-speaking investors who would like to learn more about key financial performance indicators and wish to gain a deeper understanding of the context of each key figure over the passage of time, the publication “Geschäftsberichte lesen und verstehen” from KPMG Switzerland is recommended reading. It is available free of charge and is endorsed by a number of Swiss universities. In addition, a variety of online formats such as investopedia.com are available in English and other languages.

Financial figures are snapshots of certain points in time. They only become interesting when they are placed in context and compared with figures from prior periods. For example, large-scale investments can cause profits to decrease in the near term. The management discussion and analysis (MD&A) section of an annual report enables you to get a picture of a company’s operations and to judge its prospects for the future. If a company makes a major acquisition that is followed by an integration phase, the figures get adjusted accordingly.

To gain an overview, the first thing to read is the preface of a company report, which is usually called a letter to shareholders. In it, the chairman of the board of directors, together with the CEO of the company, explains the most important points and conveys the main messages of the year. The letter to shareholders often also includes comments on the company’s finances or on its strategy. Disclosures on corporate governance and on management compensation (if required by regulations) are found in separate sections in the front part of an annual report.

It’s advisable to take a closer look at a company’s top management personnel, who must be listed together with their CVs and a description of their professional accomplishments either in the annual report or via links on the company’s website. If you wish to gain a more detailed understanding of certain financial figures, you’ll find additional information on all major items in the footnotes to the financial statement. Footnotes are not trivial extra information; they are an integral component of financial statements.

Most publicly traded companies present their outlook for the future at the end of the preface or the MD&A or sometimes at the end of the strategy section. If they forecast specific target figures in the outlook, that is called issuing guidance. If, during the course of a fiscal year, a company determines that its financial results will come in substantially below its stated guidance, it must proactively inform shareholders of this via an ad hoc disclosure. In a study on guidance, consultancy firm IRF found that the overwhelming majority of the largest publicly traded companies listed in Switzerland (constituents of the SMI Expanded index) integrated forward-looking target figures into their 2022 annual reports. The study found that revenue and operating earnings (EBIT/EBITDA) are the most frequently communicated target figures. Guidance is usually less common and less detailed at smaller companies that have only a minority of their shares in free-float trading and are majority-owned by anchor shareholders.

A sustainability report is either integrated into the main body of a company’s annual report or is published separately. Disclosing a sustainability report will become mandatory also in Switzerland starting in fiscal year 2023. EU regulations on sustainability reporting have spurred a clear trend toward incorporating sustainability reports into annual reports. Whoever wants to know more about a company’s workforce, its interactions with its stakeholders, and its exposure to environmental factors also reads the sustainability report, where investors find out whether and how a company evaluates environmental risks such as climate change. The company discloses its biggest impacts on its environment and explains how it is transitioning its business into a sustainable economy.

Alongside the annual report and the sustainability report, investor relations webpages also feature corporate media releases containing information on facts that could potentially affect a company’s stock price. Changes on the board of directors and the executive board, strategically relevant news, disclosures on financial results and guidance, and deviations from guidance (e.g. profit warnings) are examples of items that could materially affect a company’s share price. Investors can register to automatically receive relevant disclosures (including ad hoc disclosures) via a newsletter subscription.

Media and investor presentations, which are likewise found in the investor relations section of company websites, are also interesting. They summarize company reports or the subject matter of events held for investors. In all of these formats, just like in company reports, the paramount priority is to inform the various stakeholders matter-of-factly about a company’s business performance.