The 7 critical items to read first in an annual report in 20 minutes (Part 7 of 9)

This is a series of articles describing how to quickly understand the key aspects of the annual report from a company that you have invested in with your hard earned money. This series started with an overview post on November 30, 2010.

6. Shares outstanding and Stock repurchase

You will almost definitely need to search for these terms in order to read about this information. The discussion will likely be buried in the report and not obvious in the Table of Contents.

You need to understand why the shares outstanding changed. Did the company buy back a lot of shares via a stock repurchase plan? Did they issue more shares?

There is no right answer for this metric but you need to understand what happened and you need to be comfortable with the reason. Was this change in your long-term best interest even if it hurt you in the short term? You definitely want to make sure that the company is not changing this number to hide some other shortcoming.

While stock repurchasing is a way to increase the stock price of the company, it generally means that the company is using its own cash to buy its stock. This means that the company isn’t using its money to pay for long-term assets or revenue producing assets. Do you really like the idea that the company is putting $5,000,000 into its own stock rather than spend that money on better marketing or more product development?

Here are the links to all 9 posts of the series:

  1. The 7 critical items to read first in an annual report in 20 minutes (Part 1 of 9)
  2. The 7 critical items to read first in an annual report in 20 minutes (Part 2 of 9)
  3. The 7 critical items to read first in an annual report in 20 minutes (Part 3 of 9)
  4. The 7 critical items to read first in an annual report in 20 minutes (Part 4 of 9)
  5. The 7 critical items to read first in an annual report in 20 minutes (Part 5 of 9)
  6. The 7 critical items to read first in an annual report in 20 minutes (Part 6 of 9)
  7. The 7 critical items to read first in an annual report in 20 minutes (Part 7 of 9)
  8. The 7 critical items to read first in an annual report in 20 minutes (Part 8 of 9)
  9. The 7 critical items to read first in an annual report in 20 minutes (Part 9 of 9)

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.