Annual Report: What Should You Know?


Definition of Annual Report

An annual report is a document drawn up each year after the end of a financial year. It includes the main accounting documents of a company ( balance sheet or income statement ) and various information related to the activity of the company during the financial year.
The annual report is intended for the shareholders of the company. It is made available to them within four months of the end of the financial year. It is also sent to them at the latest within 15 days preceding the holding of the general meeting of shareholders which takes place in order to approve the accounts of the company.

What is the Annual Report?

In fact, an annual report is a communication tool between the organization and potential investors. Since the report reflects the objective effectiveness of the company (profitability, risks, etc.). Therefore, the inclusion in the reporting not only of accounting data but also of an analytical note is a condition that will help to inform investors about the potential of the organization.

Annual Report Purpose

The annual report provides information about your company’s status to shareholders, stakeholders, the media and your community. The annual report provides information about the mission and history of the company. And summarizes the company’s achievements over the past year.

Annual Report as Marketing Tool

In addition to providing financial information, the annual report serves as a marketing tool for your company. Including positive stories from employees and customers or key points in the history of your company. Which increases the readership of the report and attracts new investors and customers.

Annual Report Contents

The annual report should contain the following information:

  1. Company profile;
  2. Brief description of the company’s main products or main service items;
  3. A brief description of the company’s industry;
  4. Brief information on the important factories, mines, real estate and other properties owned by the company;
  5. Brief information on the important factories, mines, real estate and other properties owned by the company;
  6. The company’s issuance of foreign shares, including the list of shareholders holding more than 5% of the company’s common shares outstanding and the list of the top 10 largest shareholders
  7. Priority areas of the company
  8. A description of the main risk factors associated with the activities of the companies;
  9. A checklist and profile of the company and its affiliates.
  10. Distribution of the company’s financial status and operating results by the company’s management department;
  11. Major lawsuits involving the company ;
  12. a list of transactions completed by the company in the reporting year that are recognized as major transactions in accordance with the Federal Law “On Joint-Stock Companies”;
  13. other information provided by the charter of the company or another internal document of the company.

Annual Report Example

Many large companies publish their annual reports on their websites. In addition to the accounting documents ( balance sheet and income statement ), the annual report must contain a set of information relating to the activity of the company and in particular its situation during the past financial year, its foreseeable development, significant events that have occurred. between the closing date and the preparation of the report, research and development activities.

The activity report constitutes an analysis of the development of the business and the financial situation of the company. The corporate officers must indicate the debt situation of the company, the key performance indicators, information relating to environmental and personnel matters. Companies with an auditor have the obligation to specify the payment periods applied by the company and its suppliers. The annual report also mentions the acquisition of holdings in other entities.

Quality Criteria of Annual Report

To prepare the most correct annual report (analytical note with accounting data), it is important to adhere to the preparatory work. Report preparation includes:

  1. Advance implementation of the report (in the last quarter of the year);
  2. The appointment of a coordinator who will oversee reporting;
  3. Determination of the main purpose of the report;
  4. Determination of the audience for which the report will be designed (shareholders, government agencies, investors, etc.);
  5. Preparation of structure and content;
  6. Development of a reporting standard.

It is typical that the accounting data in the report allow you to quickly assess the financial situation of the organization, but to assess the potential of the company, you need to study the analytical note. Therefore, a well-composed analytical note should contain the following information:

  1. Strategies for the further development of the organization;
  2. Quality risk management;
  3. Analysis of accounting results.

Potential investors, evaluating the quality of the annual report, pay attention to the presence of attributes that characterize the report on the positive side. The inclusion of such attributes in the report automatically increases the attractiveness of companies for investors, respectively, the organization has a chance to get additional financing from the outside for business development. The main attributes of a quality report are:

  1. Overview of the company;
  2. Analysis of key performance indicators of the organization;
  3. Financial review ;
  4. An industry survey identifying growth factors;
  5. risk analysis;
  6. A financial history of the company with the provision of ratios;
  7. Charts, diagrams, tables;
  8. Section for investors with a review of the stock market.

How to Read Annual Reports?

  1. Make sure you understand the business logic of this company’s field. I think this is the first step before looking at an annual report.
  2. Determine what you need to know. Don’t be too busy reading every line of the annual report when you understand the company’s main business content and business logic.
  3. Look at the balance sheet first. I always feel that the structure of ordinary reports is a bit unreasonable. Because they put the profit statement in front, but it doesn’t matter.
  4. Reading of accounting policies. Just check if there have been changes in these accounting policies. If you are reading for the first time, you may need to be more serious. Some differences in accounting policies may produce completely different balance sheets and income statements and legally allow this.
  5. Income statement and cash flow statement. After confirming that you already know the company’s asset structure and accounting policies, you can read the income statement and cash flow statement. At this step, you can determine most financial indicators. Refers to the financial standing, the accurate calculation might not need to do, at least I will not do these precise calculations, roughly the mental arithmetic can get to know whether these indicators consistent with common sense or there are a “good genes” or “trap “.
  6. A detailed description of financial data. Finally, I think it is necessary to seriously look at the financial data portion of the description described above, including the investment, the composition of the receivables and each business unit’s operating status.

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