Understanding Annual reports.

What is an annual report?

An annual report is a summary of all that’s happened in the business in a financial year – growth in revenues, new contracts, new milestones, changes in management team, new appointments of key personnel’s, future plans etc. It is prepared by the management and  distributed to the shareholders, promoters, government authorities, general public and to anybody who’s interested in the affairs of the company. Most annual reports are in the form of a book. It runs into many pages starting from a chairman’s message to future plans and prospects. An annual report is presented in the annual general meeting.

What is a financial year?A financial year is a period of twelve months or less ending on 31st march in India. It could be any other date-for example, for most of the European countries, financial year ends on 31st December.

What does an annual report contain?

Typically an annual report would kick off with the letter to the shareholders from the Chief Executive Officer. It will also contain a list with contact numbers of all the key board members, auditors, company secretary etc

Then, in the next pages, detailed financial reports like balance sheet, income statement, supporting schedules, a general report on company’s operations, an independent auditor’s report etc are given. It will also contain details regarding the share holding pattern of the company, along with historical share prices – highs and lows, a lot of pictures and graphs, displaying in visual form all the milestones and achievements the company has made.

You will have to read his report with a shrewd mind because, generally, an annual report may amplify the positive aspects of the business and give less attention to the negative aspects. The chairman’s report may indirectly contain apologies for targets missed. The best way to read the annual report is to read it in comparison with the previous one. When you connect the present report with the previous ones you’ll straight away get an idea about what targets have been missed during the year. That way, you’ll also get the first impression about the management’s performance.

It may take some expertise and patience to read and understand an annual report thoroughly. As an investor, it will be very beneficial for you to go through these reports since; it will give you more insights into that company’s operations.

Contents of an annual report:

You should be able to find the following informations from an annual report:

Letter from the CEO

Summary of the operations-milestones, achievements, prospects.

Past Annual summary of all financial figures.

Management discussion and analysis of the performance of the company

The director’s report.

The balance sheet

The income statement

Auditor’s report

Subsidiaries, brands, addresses, registered office, head quarters etc..

Names of directors

Stock price history

Annual reports are a collection of important informations that may be vital for the investor. Our next article would tell you on how best to read them and what to look for.

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3 Responses to “Understanding Annual reports.”


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