Annual Reports and Statements

What is an Annual Report?
If you own shares in a public company then once a year you should receive a copy of that company's annual report. An annual report is simply that - it is a report from the directors of the company as to the performance of the company over the previous twelve-month period.

It contains a lot of information regarding the company's operation, its products, its goals and its future planning, as well as financial results of the past year. Most annual reports are produced with reader friendly presentation and contain product information, photographs, charts, financial data and a letter from the CEO on the previous year's developments and results.

Annual Reports Must be Well Produced
The annual report is generally a well set out and designed document, consisting of up to 100 pages printed in glossy paper with beautiful photography, charts, and diagrams, all intended to impress the shareholder in the company that they have invested.

Some of the technical data included in the report is too technical for most shareholders, but it is still important that those matters be documented for the shareholder to take to their adviser if necessary.

In general the larger the company then the larger and more elaborate the annual report. It is one of those types of documents that the post office people hate handling because its size is usually out of the standard size of document, being overlarge and difficult to fit into most mailboxes.

Even though the document can be quite daunting for many shareholders, it is something that should not be thrown into the rubbish bin because it will contain information of interest to the shareholder's accountant and should be kept for comparison of future results of the company.

What is Included in an Annual Report?
The content of every annual report is unique to that particular company. The first thing that you as a shareholder will encounter is what is known as "the chairman's report". This is in the form of a letter and is in the front of the annual report. It includes a brief description of the accomplishments and challenges the business has faced during the previous year, as well as details of other key events.

This is then followed by other details where the operations of the company are fully reviewed.The chairman's report is really designed to give a quick overview of the company and its activities and is generally written in easy to understand language.

The next area you will see is a summary of all the key happenings within the company which relates mainly to its production, marketing, sales and financial operations. Perhaps the main part of the annual report is involved with the financial position.

Inside the report you will find financial statements, which are made up of 3 main things:

  1. The Profit and Loss account (or Revenue Statement).
  2. The Balance Sheet.
  3. A Statement of Cash Flows.

Even though the content of an annual report varies from year to year and also from company to company, most will contain the basic information as follows:

  • A letter to shareholders from the CEO or Managing Director or President.
  • A summary of the previous year's results.
  • Information about the company, including its structure (and changes) products, services and subsidiary operations.
  • A full detail elaboration on the company's financial activities and results.
  • A copy of the financial statements themselves, that is, a copy of the Profit and Loss (or revenue) statement, Balance Sheet and cash flow statements.
  • Notes are added related to the financial statements and include explanations or reasons for the results that are shown.
  • It may also contain other information about the company, which often is not included every year in the documents, but may relate to a happening in that particular year. For example, there may have been a disaster in one of the subsidiaries, due to unforeseen events, (i.e. an earthquake etc) important enough to be noted separately.