Understanding Business Accounting For Dummies, 2nd Edition (112 page)

Public company accounts

Most companies make their glossy annual financial reports available to download from their Web sites, which you can find by typing the company name into an Internet search engine. You need to have Adobe Acrobat Reader on your computer to open the files. No problem, though: Adobe Acrobat Reader is free and you can easily download the program from Adobe's Web site (
http://adobe-reader.download-start.net/download
). The software enables you to search for key words in the annual report - a handy feature indeed for tracking down the sections of the report you're most interested in.

Yahoo has direct online links to several thousand public company reports and accounts at
http://uk.finance.yahoo.com
(click on ‘Free annual reports'). Paying this site a visit saves you the time and trouble of hunting down company Web sites.

Public company annual financial reports are available to you, to me, and to the general public on the London Stock Exchange Web site (
www.londonstockexchange.com
). You can find reports for US companies on the Securities Exchange Commission's (SEC's) EDGAR database at the SEC Web site (
www.sec.gov/edgar/quickedgar.htm
.

Private company accounts

Finding financial information on private companies is often a time-consuming and frustrating job. Not for nothing do these companies call themselves ‘private'. Businesses, and particularly smaller businesses, can be very secretive about their finances and have plenty of tricks to hide information from prying eyes. Many smaller businesses can elect to file abbreviated accounts with Companies House that provide only the barest details. You can find out just what these shortened accounts must contain at the Business Link Web site (go to
www.Businesslink.gov.uk
and click on ‘Taxes, returns, & payroll', ‘Introduction to business taxes', and ‘Accounting and audit exceptions for small companies'). The accounts of very small companies don't need to be audited, so the objective reliability of the scant data given may be questionable. Having said that, tens of thousands of private companies file full and generally reliable accounts.

Two fruitful sources of private company accounts exist:

Companies House
(
www.companieshouse.gov.uk
) is the official repository of all company information in the UK. Their WebCHeck service offers a free Company Names and Address Index that covers 2 million companies, searchable either by company name or by company registration numbers. You can use WebCHeck to purchase (at a cost of £1 per company) a company's latest accounts that give details of sales, profits, margins, directors, shareholders, and bank borrowings.

Keynote
(
www.keynote.co.uk
) offers business ratios and trends for 140 industry sectors and provides information to assess accurately the financial health of each industry sector. This service enables you to find out how profitable a business sector is and how successful the main companies operating in each sector are. Executive summaries are free, but expect to pay between £250 and £500 for most reports.

Scoring credit

If all you want is a quick handle on whether a company is likely to be around long enough to pay its bills, including a dividend to shareholders, then a whole heap of information exists about credit status for both individual sole traders and companies of varying complexity. Expect to pay anywhere from £5 for basic information up to £200 for a very comprehensive picture of a company's credit status. So you can avoid trading unknowingly with individuals or businesses that pose a credit risk.

Credit-rating companies take a number of ratios, such as the current ratio and gearing and profit margins, and combine them into a super single ratio that gives a score for a business's chances of survival. The grand-daddy of these super ratios, the
Altman Z-Score
, measures the ‘fiscal fitness' of a company. The Altman Z-score uses data from a company's financial statements and a combined set of five financial ratios, and operates statistical techniques to predict a company's probability of failure. The Credit Guru Web site (
www.creditguru.com/CalcAltZ.shtml
) contains a Z-score prediction calculator. Just pop the figures into the onscreen template, and the score and an explanatory narrative paint the picture for you. The calculator is even colour coded to make life simple: The factors in green are taken from the profit and loss account and the factors in red from the balance sheet.

Experian (
www.UKexperian.com
), Dun & Bradstreet (
www.dnb.com
), Creditgate.com (
www.creditgate.com
), and Credit Reporting (
www.creditreporting.co.uk/b2b
) are the major agencies compiling and selling credit histories and small-business information. Between them they offer a comprehensive range of credit reports instantly available online that include advice about credit limits.