Q: Do annual reports indicate how overvalued or undervalued a company's stock is?
- R.N., Jacksonville, Fla.
A: Not usually, but you'd do well to read your holdings' annual reports anyway. If you're a novice, at least read the chief executive's letter to shareholders, which offers a sense of management character and the company's strategic plan. The financial statements can be even more informative. The balance sheet will show the firm's financial health at one point in time, including its cash, money it owes, money owed to it, etc. The income statement (or the statement of operations) shows sales, costs and profits over a period of time, while the statement of cash flows will list all of the company's cash inflows and outflows during the period.
