An annual report combines audited financial statements with management discussion, governance information and detailed notes. No single ratio provides a universal buy or sell rule.
Read the statements together
- Profit and loss: revenue, expenses and accounting profit over a period.
- Balance sheet: assets, liabilities and equity at a date.
- Cash-flow statement: operating, investing and financing cash movements.
- Notes: accounting policies, segment detail, contingencies, related parties and assumptions behind headline figures.
Revenue growth can coexist with weak cash conversion. A lower debt balance can coexist with lease or contingent obligations. Compare several periods and reconcile management explanations with the statements and notes.
Ratios are descriptive
P/E relates market price to earnings. ROE relates profit to shareholder equity. Margins compare profit measures with revenue. Leverage and coverage ratios describe financing pressure. Their interpretation depends on sector, accounting choices, business stage and the quality of the underlying figures.
Fixed cutoffs such as “P/E below X” or “ROE above Y means good” are not universal valuation rules. Compare like with like and investigate what changed before drawing a conclusion.
This article explains document-reading mechanics. It does not recommend a company or security.