/annual-report-xray

---
name: annual-report-xray
description: >-
  Read a company's annual report, 10-K, 20-F, half-year report or IPO
  prospectus and return a two-page x-ray: the ten numbers that matter, how
  the company really makes money, the red flags hiding in the notes, and
  the questions the document does not answer. Every figure carries a page
  reference. Use this skill whenever the user uploads or links an annual
  report or filing and asks to "summarise", "read this for me", "what's in
  the 10-K", "analyse this company", "red flags", "is this company
  healthy", "prep me on this business", or is researching a supplier,
  client, employer or investment. Do NOT use to give a buy, sell or hold
  recommendation, to value the shares (that needs a valuation model), or
  for a single press release or earnings headline.
---

# Annual report x-ray

An annual report is written by the company, for the company. The front
half is marketing: the chairman's letter, glossy photos, "adjusted"
figures that the company chose. The truth sits in the back half: the
audited statements, the notes, the risk section and the auditor's report.
Most readers, and most AI summaries, stop at the front half and repeat the
company's own story back to the user.

This skill reads the document the way an analyst does: from the back.
It starts where the numbers are audited, checks the company's story
against them, and spends its effort on what is buried, not on what is
headlined.

## Workflow

### 1. Confirm the document

State the company, the document type, the period it covers and the
reporting currency and standard (IFRS, US GAAP, local). If the file is a
scan you cannot read, or only part of the report, say so before anything
else. An x-ray of half a document must say it is half.

### 2. Read in this order

1. **Auditor's report.** Is the opinion clean (unqualified)? Is there an
   "emphasis of matter" or a "material uncertainty related to going
   concern"? List the key audit matters: they are where the auditor spent
   the most effort, which tells you where the risk is.
2. **Cash flow statement.** Operating cash flow vs net profit. Capex.
   Free cash flow. How dividends and buybacks were paid for.
3. **Balance sheet.** Net debt, current ratio, goodwill as a share of
   equity, receivables and inventory growth vs revenue growth.
4. **Income statement.** Revenue, gross margin, operating margin, net
   profit, and the gap between reported and "adjusted" profit.
5. **Notes.** Segment results, related-party transactions, debt maturities
   and covenants, leases, contingent liabilities, changes in accounting
   policy, share-based pay.
6. **Risk section and management commentary.** Last, and only to compare
   the story with what you already found.

### 3. Pull the ten numbers

Always report these ten, current year and prior year, with page numbers:

| # | Number | Why it matters |
|---|---|---|
| 1 | Revenue and growth | Size and direction |
| 2 | Gross margin | Pricing power |
| 3 | Operating margin | Cost control |
| 4 | Net profit (reported) | The audited bottom line |
| 5 | Operating cash flow | Whether profit turns into cash |
| 6 | Free cash flow | Cash left after investment |
| 7 | Net debt / EBITDA | How heavy the debt is |
| 8 | Debt due within 2 years | Refinancing pressure |
| 9 | Largest customer or segment share | Concentration |
| 10 | Headcount or revenue per employee | Scale and efficiency |

If a number is not disclosed, write "not disclosed" with the page you
checked. Never fill it from memory or another source without saying so.

### 4. Hunt the red flags

Check each one and report only those you actually find, with the page:

- Operating cash flow below net profit for two years or more.
- Receivables or inventory growing much faster than revenue.
- "Adjusted" profit far above reported profit, with the gap growing.
- Goodwill larger than equity, or a large impairment.
- A change of auditor, or a change in accounting policy that lifts profit.
- Material related-party transactions (deals with directors, founders or
  their companies).
- Large debt maturities in the next 24 months with thin cash.
- Covenant headroom described as "tight", or a covenant waiver.
- Going-concern language anywhere.
- Revenue recognition that changed, or that relies on long contracts.
- Big one-off gains (asset sales, revaluations) carrying the profit.

### 5. Write the x-ray

```
## [Company], [document], [period]
Read: [full document / pages X-Y only]. Standard: [IFRS/GAAP]. Currency: [ ].

**In one paragraph:** [How the company makes money, whether it turns profit
into cash, and the single most important thing a reader should know.]

**The ten numbers** [table, with page refs]

**Red flags found** [each: what, how big, page. Or "None of the 11 checks
triggered", listing what was checked.]

**What the company says vs what the numbers say** [2 to 4 lines where the
front half and the back half disagree.]

**Questions this report does not answer** [3 to 5, specific.]

Source: [document name], pages cited. Not investment advice.
```

## Judgment rules

**The notes beat the letter.** When the chairman's letter and a note
disagree, report the note, and point out the gap.

**Reported first, adjusted second.** Always show the audited figure. Show
the company's adjusted figure only next to it, labelled as the company's
own measure.

**Compare, do not grade.** "Operating margin 8.1%, down from 11.4%" is
useful. "Weak margins" is a judgment without a benchmark. If the user wants
a peer comparison, say which peers and where their numbers came from.

**No red flag is not a clean bill of health.** Say which checks you ran.
An x-ray that finds nothing has to show its work.

**Stay on the right side of advice.** Describe the business and the risks.
Never say buy, sell, cheap or expensive. If the user asks, say that needs a
valuation and their own judgment.

## Example

A retailer reports net profit up 22% to €48m. The cash flow statement shows
operating cash flow of €19m, down from €61m. Note 14 shows inventory up 41%
while revenue grew 9%, and note 22 shows a €17m gain on selling a warehouse.
The x-ray headline is not "profit up 22%". It is "Profit up, cash down by
two thirds: a one-off property gain and a stock build-up explain the gap
(pp. 88, 112, 131)."