Merril Lynch

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The Merrill Lynch Guide to

A Message from the Chief Financial Officer
Merrill Lynch believes an informed investing public is critical to both the capital markets and the economy. We are committed to clear and accurate reporting of our own financial information and also to an enhanced understanding of the reports of other corporations. This Guide to Understanding Financial Reports is an initiative by Merrill Lynch and its communications partner, Addison, to provide a clear, practical explanation on how to read and interpret a corporate report. We encourage you to use this resource to help you play a more active and informed role in working with your Financial Advisor—and ultimately gain better control of your investment activities.

Ahmass Fakahany
Chief Financial Officer
Merrill Lynch & Co.

About Merrill Lynch

About Addison

Merrill Lynch is one of the world’s leading financial
management and advisory companies, with offices
in 36 countries and total client assets of approximately $1.3 trillion.

With offices in New York and San Francisco,
Addison is a creative-services company specializing
in business communications. For more than 40 years,
Addison has helped the world’s most successful
companies tell their stories through singular,
award-winning annual reports.

Through Global Markets and Investment Banking,
the company is a leading global underwriter of
debt and equity securities and a strategic advisor
to corporations, governments, institutions and
individuals worldwide. Through Merrill Lynch
Investment Managers, it is one of the world’s
largest managers of financial assets. Through
its Global Private Client Group, it is a leading
worldwide provider of wealth management and
investment services to high-net-worth individuals.

Today, Addison also specializes in simplifying
complex business communications for all audiences.
In this Guide to Understanding Financial Reports,
both competencies converge to create a definitive,
easy-to-understand explanation of an important
investment tool. In addition to annual report design
and simplified communications, Addison also has
practices in brand identity, business literature
and naming.

PLACEHOLDER ONLY! THIS PAGE DOES NOT PRINT!

page A

Table of Contents

2 Introduction: About This Guide
4 Consolidated Financial Statements: The Key Components
5 The Balance Sheet: Assets
10 The Balance Sheet: Liabilities and Shareholders’ Equity 17 Analyzing the Balance Sheet
22 The Income Statement
27 Analyzing the Income Statement
32 The Statement of Changes in Shareholders’ Equity
36 The Statement of Cash Flows
38 Additional Disclosures and Audit Reports
40 The Long View
41 A Note on Selecting Stocks
42 Index

page 1

Introduction: About This Guide
The increasing number of accounting rules and disclosure requirements have made financial statements a larger and more complex—but not always transparent—vehicle for understanding a company’s true economic position.

At Merrill Lynch, we are committed to following
a principles-based approach to financial reporting,
an approach that is committed to showing the real
substance and business purpose of a company’s
transactions. And, with Addison, we are also
committed to giving the average investor access
to this information by promoting understanding
and simplification of complex communications.

The difficulty investors have understanding the
financial reports of public companies or their own
retirement savings plans is increasingly recognized
as the responsibility of the companies issuing those
documents. In fact, as additional accounting rules
and disclosure requirements have made financial
statements larger and more complex, clarity matters
more than ever.

Complexity and Financial Communications

How the Corporate Financial Report Evolved

There’s a simple reason this Guide has been so
popular among Merrill Lynch clients for so many
years—it is because many people...
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