I actually wanted to put this up on the Cheapin’ out blog to continue my talk on penny stocks and how to get started, but I felt that this particular piece would be better on this blog.

If you want to start investing in penny stocks, a good understanding of financial statements and related data is vital to make sound decisions. Annual and quarterly reports of a public company will be the main source among others that an investor can utilize to get the information he or she needs. The balance sheet, income statement and cash flow statement are the annual reports that you would need to pay attention to. A lot of times the footnotes to these statements reveal a lot of crucial information.

Other sources of data that are critical to financial analysis are the stock price of a publicly-traded corporation which can be found on websites such as the NYSE and the financial press. Economic data like the Consumer Price Index can come in handy too in determining the potential of the industry that a company is in. Often, financial data is not sufficient and due diligence must be done to obtain the consumer prices and the general market information like the competition that a firm faces. Government and private sources should have this economic data.

Another very important sources of information is that of current events like what the company is doing right now or in the future. That is, is the company merging with another firm or developing a new type of product or service. All of this has a great impact on financial analysis.

I hope this article gave you some understanding of how to comprehend the risk and profitability of a business by analyzing information whether it is financial or economic in nature or something else that could affect a company.