Financial Reports You Should Review for Penny Stocks

Every publicly traded stock has an obligation to provide reports of its operational results. Unless you're dealing with very unprofessional or low-quality markets (and you're not, are you?), reporting of the financials will be mandated by the exchange and be issued on a quarterly (three month) basis.

For example, if a penny stock's first quarter runs from January to March, it will report the total results for that period as its Q1 release. You can then compare those results to the prior quarterly report, or against the results achieved from the same quarter in previous years. Each quarter, companies release the following main financial reports:

• Income statement
• Balance sheet
• Cash flow statement

All you need to know is that these reports reveal the financial strength and position of the company. By comparing quarterly results, you will also be able to spot trends as they develop and play out.

Financial reports intimidate most investors because they appear complicated or hard to understand. In truth, they're actually as easy to interpret as they are helpful to your understanding of the company.

If you're thinking about investing in a penny stock company, you should know exactly how much money it is bringing in from sales, and how much debt it has, for example. The financial reports tell you all of this.

While financial statements are generally standardized from one company to the next, there can often be differences. For example, what one company calls "sales" on its income statement, another company may call "revenues," but the terms mean the same thing. And some terms — "legal expenses," "investment income," and "goodwill," for example — will vary depending on the underlying company's operations.