If you want to do research, you might start with how do reporters do investigative reporting? One method is to review the books, the journalism students are given and one will similar to what Canadian students are given – Digging Deeper by Robert Cribbb, Dean Jobb, David McKie and Fred Vallance-Jones published by Oxford University Press, Oxford, England, 2006.

Tips on Financial Statements

Cash is king.    A company’s lifeblood is cash flow, not profit. It is a bad sign when cash flow is decreasing. An important metric is free cash flow – cash flow from operations minus property and equipment purchases.

Soft spots – The balance sheet tells a story about the company’s overall financial condition. You can find out whether a company’s debt is growing or whether it is having trouble collecting from customers. If the debt is increasing, can the company earn enough to pay the debt off? What is a sale?

It will not happen again (maybe) – Beware of costs labeled nonrecurring or unusual or one time. If they are there, check previous balance sheets to see if they are there? if they are what is the one time asset?

Forms from Securities Regulators

Public companies must file forms with the regulators. Only when they are out of place do they begin to raise alarm bells. When companies do file them, there are often in the business press.

Auditors and fees                                      Proxy Statement

Auditor’s Resignation                              8-K  (publication of material change)

Basic details of company’s business    10-K

Bios and salaries of key employees       PRE-  14-A

Company’s history                                      10-K

Executive Pay                                                 10-K

Financial statements                                 10-K

Fiscal year                                                      10-K

Former executives                                        10-K

Legal trouble                                                  10-K

Management changes                                  8-K

Merger agreements                                      8-K

Products                                                           10-K

Related party deals                                        Proxy and 10-K

SEC Lawsuits                                                http://www.sec.gov/litigation/litreleases/shtm/

Class action                                            http://securites.stanford.edu/companies.html                            click on index filings

Linking to dividend paying stocks, most of the time the only form you will be interested is the 10-K because it gives you information about the company and what it does. What material changes are occurring and if they matter. Changing an auditor is not necessarily a bad thing, but it could be depending on the reason. (one of the problems of the Bernie Madoff scam was a small office auditor for such complicated transactions. Many things in the securities business is a maybe. You do not how the stock will perform until it does; but you can lower the maybe to companies that have been profitable for a number of years and can consistently pay their dividends. One of the good things about major problems is you can see how the company has handled them in the past, likely their first reaction will the same in the future.

There are more questions than answers, till the next time – to raising questions.