We're in the midst of the company reporting season, when many of our listed companies produce annual reports showing how they've fared over the last year.

These reports can be pretty dry stuff, but if you've got a direct investment in shares they're well worth a look, especially if you know what to focus on, and what to avoid.

One of the hurdles facing ordinary investors is that annual reports tend to be loaded with jargon and accounting data- much of which can mean very little to the average shareholder.

However there are several key pieces of information to pick out that don't call for a business degree.

A good starting point is to see whether the company made a profit.

If it didn't, what reason for the loss was given in the directors' report?

It's quite common for companies in the 'start-up' phase to run at a loss for a few years, but if the company is well-established, the directors should provide a clear indication of why the company is in the red, and what is being done to turn the situation around.

Next, take a look at the cash flow statement to get an idea of how the company is funding its activities.

It could be relying on cash generated by business activities, and that's a good thing.

Or may be that the company is building debt, and as with households, too much debt can lead to financial meltdown.

Alternatively the company could be funding its activities through additional capital raised from shareholders.

This is a less costly source of funds than debt, though it does have the potential to water down the value of your own investment.

One of the downsides of company reports is that they often come packed with glossy images.

Ordinarily, a picture tells a thousand words, but not in a company report.

Photographs can be used very cleverly in company reports.

They can imply that a company has secured certain business contracts, or that it is engaged in particular markets or activities, something which may not be the case at all.

As a guide to how persuasive these images can be, one US study found that even under-performing companies can attract investors if the annual report is dressed up with the right photographs.

In fact, investors are almost twice as likely to invest in a company whose report features lots of glossy images.

If you need help understanding these reports, there's plenty of freely available information on the consumer website of the Australian Securities and Investments Commission.

Or pick up the phone and speak with your accountant, financial adviser or stockbroker.

Either way, it's worth casting your eye over the reports but be prepared to focus on the big issues and turn a blind eye to the pictures.