Understand Investment Reports for Smart Portfolio Management

investment reports
October 27th, 2020 0 Comments

Investment reports, also referred to as equity reports or financial reports, are a key ingredient in an investor’s success. These statements include essential information about a company’s income, sales and profit growth, etc. They can even contain cash flow statements and gains and losses as well.

Depending on the type of investment report, they also often contain recommendations on whether investors should consider buying, holding, or selling shares of the company. These are based on a company’s performance.

In short, if you are seeking to have an investment question answered about a certain company, their equity report probably contains the answer for you. But how you siphon through these often very lengthy reports to not only find, but also to interpret, can be quite challenging.

That is exactly what we will be diving into in this article. We will explain and discuss what exactly goes into a company’s financial reports and how the different types are structured. We will also give recommendations on how best to understand and interpret investment reports. And finally, we’ll discuss why a high net worth investor should have some understanding of the equity reports for smart investment management.


So What Can You Find in Investment Reports?

Some investors may be quite familiar with these reports, others might be ready to begin investing and are researching where to invest.

The term equity report is used frequently in the high net worth investment realm. An investment report is essentially a scouting report on one particular publicly traded company.

They are put together by financial analysts and provide:

  • an overview of the company’s place in its sector (as well as the sector itself)
  • the strengths and weaknesses of its management team
  • its financial performance (via financial analysis)
  • the risks of investing in it, etc.

Importantly, the financial analyst will also provide a recommendation on how they believe that it would behoove potential investors to interact with the company vis a vis shares.


Why Are Investment Reports Important for the Smart Investor?

We will cut to the chase here – investment reports are very important, and for high net worth investors, we recommend that you become savvy at reading and interpreting them (if you are not already).

This is because there is not a significant amount of comparable insight available into the specifics of the financial performance of individual companies. Financial research reports are sometimes up to 50-100 pages long. Their coverage of how a given company stacks up against its competitors, its industry, and its financial forecast is exhaustive and unique in its analysis. If you are looking to invest your assets creatively and thoughtfully, it would be wise to make financial reports a part of your research plan.

However, as it turns out, reading and understand investment reports is not quite as straightforward as one might think. One reason is – as mentioned previously – they can be quite long. The clients that come to us are busy people; and it’s important to research a stock before investing. But this does not necessarily mean you need to be thoroughly reading a 100 page document every time you are thinking about making an investment.

This is why it is so important to know how to read equity and investment reports. Hence, if you know:

  • what information each section of the report covers
  • where the most important information is
  • where to find the answer to any particular question you may have

Afterwards, you will be able to read the report quickly and efficiently.


Sections of Investment Reports

Investment reports typically have four major sections. Each section is unique in its importance and analysis. As such, we generally recommend familiarizing yourself with each section. And next you can focus in on the one or two sections that are most relevant to your particular investment questions.

1. Company overview

The first section is usually the company overview. This section contains exactly what it sounds like – a general review of who the company is and what they do.

This is particularly important if you are not especially familiar with the company. It provides background on the company, as well as background on its industry and the company’s place in said industry (is it a leader, an up and comer? etc.).

The company overview section will also generally contain any relevant updates about the company.

  • Did they just hire a new CEO?
  • Have they been performing particularly well lately?
  • Did they just restructure their entire management hierarchy?

This sort of qualitative information can be quite interesting and important, especially if you are deciding whether or not to invest.

2. Investment thesis

The second (or sometimes third) section is typically the investment thesis. This is widely considered to be the most important section in an investment report.

In the investment thesis, the financial analyst authoring the report defends his or her position regarding their recommendations on investing in the company. If they are predicting that a share in the company will underperform, this is where they explain that opinion and try to convince investors of it.

The investment thesis is the meat of the analysis portion of a financial report, with a fundamental analysis of the company’s financial situation. This goes beyond just stating the company’s financial information, but instead puts that information into context. The analyst will explain the research they have done on the company’s financial statements in great detail.

3. Financial information and valuation

The third (or sometimes second) section of an equity report is the financial information and valuation section. This is the more straightforward cousin of the investment thesis.

The financial information section contains all the information that goes into the opinion regarding investments that the analyst defends in the investment thesis. This section should contain all of the relevant financial information and valuations that one expects to find when considering an investment in a given company.

The financial information section discusses the company’s:

  • cash flow
  • balance sheet
  • a forecast of their income statement
  • their valuation, and more

You can also often find a company’s relative value (its financial metrics as compared to competitors) here. In addition, you would find its book value (what it would be worth if liquidated) in this section. If you are looking for straight figures and metrics, this is the section to investigate.

4. Risks and disclaimers

The final section of an investment report is typically the risks and disclaimers section. This, again, is exactly what is sounds like: an enumeration of the risks that may come with investing in a particular company.

If the analyst has been especially thorough regarding the company, they will generally tie that back into its risk factor in this section. Another common – and helpful to know – risk disclaimer in this section could be regarding the company’s industry. Especially in the chaos of 2020, certain industries have taken huge falls, and meanwhile some have significantly outperformed their financial forecasts. If there is a particular concern (or optimism) over the future performance of the company’s sector, it will be noted in this section.


Interpreting the Types of Investment Reports

What we have discussed above was a very general outline of what the most common type of investment report contains. However, the type of investment report can vary, and as such its contents may be slightly different. It is important to be able to distinguish between buy side investment reports and sell side investment reports.

Buy side reports are produced by buy side investment firms, or asset management companies. They are created for internal investment purposes only, and as such are not made available publicly.

Sell side reports, on the other hand, are produced by sell side investment firms, who create the reports for their trading and wealth management clients.


Other types of investment reports

Investment reports may also vary by their focus. The type of report discussed above is usually referred to as a company update, or company note report (and as mentioned is the most common type of investment report).

Other types of investment reports are flash reports – quick snapshots of the analyst’s take on the company. Most companies would have an annual report, but also quarterly reports – focusing only the company’s earnings in a given financial quarter. And finally there are sector reports. These cover the performance and the forecast of an entire sector and, as you can imagine, are quite long.

Of course, there are even more different types of investment reports, but those are three important variations. And as always, we are ready to help you interpret these financial documents and more, for a complete understanding of your investment and wealth portfolio.


We Can Help

There are few things that affect as many areas of your life as your wealth. Thinking about retirement, estate, or financial planning? Or will you use your wealth to provide for legacy or charitable purposes? Proper wealth management is what will make it happen.

At Saddock Wealth, our years of wealth management experience can help guide you toward financial prosperity. Schedule a meeting here, and we’ll discuss your best options.






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Understand Investment Reports for Smart Portfolio Management
Understanding investment reports helps inform your portfolio management. See the reasons why investors should become familiar with these financial reports.
Investment Management
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