Introduction to an Annual Report
An annual report is a document a public corporation is expected to send to shareholders annually to explain its activities and financial conditions. Often the front part of the report includes an impressive mix of illustrations, images, and an accompanying narration, all of which chronicle the activities of the organisation over the last year. The back part of the report includes extensive details on finances and activities.
What Does an Annual Report Contain?
The aim of the required annual report is to make the business operations of a corporation publicly available over the past year. The report is usually given to shareholders and other interested parties who use it to determine the financial performance of the company.
Usually, the following sections will be included in an annual report:
- General corporate details
- Financial and operating highlights
- Letter to shareholders from the CEO
- Management's discussion and analysis (MD&A)
- The narrative document, charts, and images
- Financial statements, including the balance sheet, cash flow statement, and an income statement
- References to the financial statements
- Auditor's report
- Accounting policies
- Summary of financial data
How Can an Annual Report Be Used?
The annual report provides details on the financial condition of a company which can be used to measure:
- The capacity of a business to pay its obligations as they occur.
- If a business made a profit or loss in the previous fiscal year.
- A company's growth over a period of years.
- How much earnings a company maintains to increase its profits.
- The proportion of functional expenses to revenue generated.
The annual report also specifies whether the information is consistent with the widely accepted standards of accounting (GAAP). This statement is outlined in the 'Report' section of an auditor as an "unqualified view". Fundamental investors seek to understand the potential course of an organisation by examining the information set out in their annual report.
