Researching Risks
Ask the Fool
Q How can I research the risks facing some companies in which I might invest?

- R.M., Woodbridge, VA

A Start at the horse's mouth. Publicly traded American companies are required to file annual 10-K reports with the Securities and Exchange Commission (SEC). Accessible at various Web sites and from the companies themselves, these documents detail a company's financial and operational progress and also address risks facing the business.

For example, McDonald's recent 10- K cites many risk factors the company faces, such as "global and local market conditions, which can adversely affect our sales, (profit) margins and net income." Severe weather conditions are also cited, along with terrorist activities, health epidemics and pandemics, and the mere possibility of these events (for example, "the potential spread of avian flu").

Here's another risk that's faced by many firms: "Our legal and regulatory environment worldwide exposes us to complex compliance, litigation and similar risks that affect our operations and results in material ways. In many of our markets, including the United States and Europe, we are subject to increasing regulation, which has significantly increased our cost of doing business. In developing markets, we face the risks associated with new and untested laws and judicial systems."

Risks listed in 10-Ks can make you wary of investing in any company at all. Just remember that all companies have risks. Don't let the risks scare you away, but do consider them. Note also that companies often manage many of their risks, via insurance, or by locking in currency rates or commodity prices via futures contracts, for example.

Q Where online can I find the quarterly and annual earnings reports companies file with the SEC?

- P.D., Nevada, MO

A Try http://quote.fool.com or www. sec.gov/edgar.shtml.

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