The Basics

A financial report comprises three principal data tables: the Income Statement (or Statement of Results), the Balance Sheet, and the Cash Flow Statement.  Supplemental tables and Notes add detail and explanations.

The Income Statement, which concludes with the Net Income (or Earnings) Per Share, is the table that gets the most attention in the popular press.  We often hear that Company X earned 10 cents per share, beating the "Street" estimate by one cent.  However, the other financial tables also bring to light important information about the subject corporation's performance.

It is important to understand that financial data are only accurate for a particular day or range of days -- typically, a fiscal quarter or fiscal year -- in the past.  Financial statements are blind to changes in current or future marketplace conditions, such as sales surges or slumps, that cannot be extrapolated from the past. The cliché that past performance doesn't guarantee future results should never be forgotten; nevertheless, the past is one of the better predictors we have.

Fiscal Years

The fiscal year for many companies ends on 31 December, and the interim quarters end in March, June, and September. However, some companies have fiscal years that are offset substantially from calendar years.  For example, the fiscal year for most retailers ends on 31 January, give or take a few days.  Fiscal 2008 for some retailers ended when eleven months were remaining in the calendar year.

PepsiCo has an unusual fiscal calendar.  It's not too odd that the PepsiCo year ends on the last Saturday of December.  However, it is fairly strange that the first, second, and third quarters are each 12 weeks long, and the fourth quarter consists of 16 weeks or, occasionally, 17 weeks.

The most complete U.S. financial reports are those submitted to the SEC each fiscal quarter (on Form 10-Q) and each fiscal year (on Form 10-K).

Different Levels of Detail

Companies usually announce their results with press releases that include abbreviated financial reports.  These publications should be used with caution because they are subject to change and often lack details.

The financial statements, including notes, can be found at the beginning of each 10-Q report.  The notes describe the basis for the presentation of the financial statements, and they provide additional detail. The notes are intended to make the financial data clearer and more complete. Whether they do so is debatable.

The 10-Q also includes a report by management on the company's financial condition and operating results.  Management reports vary in utility; we're not aware of a standard for their construction.

The annual 10-K report includes all the content of the 10-Q, but with substantially more background information about the company and its businesses and with substantially more financial detail.


Formal U.S. financial reports must comply with a set of rules referred to as Generally Accepted Accounting Principles. These guidelines provide an objective standard that facilitates comparisons between companies. However, by including one-time financial events, they can also obscure the elements of financial performance that are due to the core business of the company.  As a result, some companies report non-GAAP, pro forma numbers that exclude certain data. Since non-GAAP values are entirely at the discretion of the reporting company, they are the easiest to manipulate. The careful analyst will treat them warily.