Notes to Financial Statements

The main statements show totals, but totals alone can hide important details. The notes explain how the figures were calculated and what they include.

Notes typically describe the company's accounting policies, such as how it recognises revenue and depreciates assets. They break down large items, such as the types of debt and when they must be repaid, or the main categories of inventory. They also disclose information that does not appear on the statements at all, such as lawsuits, guarantees, commitments to future spending and significant events after the reporting date.

For example, the balance sheet might show total borrowings of 50 million. The notes would explain that this includes a 30 million bond due in three years and a 20 million bank loan due next year, with their interest rates.

Experienced analysts often say the notes are where the real story lies. Changes in accounting policies, large one-off items and risks such as legal claims are usually explained there.