Letters to shareholders
When researching a company, one of my first stops is management's letter to shareholders in the annual report. Sometimes reading it is a waste of time. But more often, the letter lays out the chief executives' strategic plan and goals for the company in a very concise and reader-friendly format. The CEO will often be quite candid, too, about mistakes of the past and challenges for the future.
So I was happy to see that Tom Brown, a respected hedge fund manager who runs the site Bankstocks.com, shared my view. You can read a recent piece he wrote on the topic of how to glean information from a CEO's letter to shareholders in Bank Director Magazine.
Brown concludes the piece:
Every CEO letter will tell you something about a CEO, though, whether the CEO means to or not. That’s why shareholder letters, often one of the most-ignored parts of a company’s annual report, should be one of the most scrutinized, instead.
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The letter to shareholders is the only part I really read. It gives me an overview of management's performance and competence - or lack thereof. I also take a quick peak at the auditor's statement for any unusual language or concerns and see if it jives with management's statement. It's also a good idea to read all the footnotes.
Posted by: David at June 1, 2005 10:54 AM