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Annual reports are full of good information for investors.

If you’re a novice, read the CEO’s letter to shareholders, which gives a sense of what direction the company is headed in, as well as how candid the CEO is.

Even the intimidating financial statements are informative, if you give them a chance. (And they’re often not as complicated as you think.)

The balance sheet will show you the firm’s financial health, including its cash, money it owes, money owed it, etc.

The income statement (sometimes called 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.

Annual reports don’t focus on companies’ valuations, but you can look up a company’s current market value easily via online stock quotes.

For example, go to www.finance.yahoo.com, type in a company’s name or ticker symbol and look for “market capitalization” (or “market cap”).

You can also calculate it yourself by multiplying the current stock price by the number of shares outstanding.

A company’s intrinsic, or fair, value is a more elusive beast. Different analysts will come up with different numbers, using different assumptions about the firm’s growth prospects, among other things.

The Motley Fool