Top 10 Important Sections in An Annual Report
Annual reports are publications that are issued annually with the primary objective of sharing information with shareholders and investors of the company, apart from reasons related to regulatory compliance. Annual reports share vital information on the company’s operations and financial conditions.
While the front part of the report consists of an interesting combination of graphics, photos, and attractive content, all of which are chronicle the previous year’s activities, the back part of the report talks about the detailed financial and operational information.
Annual report contents are a primary source of information to the stakeholders. The document provides detailed information about the company, management views, and an authentic financial record that encourages investors to make informed decisions for their future investments.
Listed below are some of the key aspects to analyze while reading an annual report.
1.Vision and Mission Statements of The Company
Vision and mission statements are of high value as they make way for discussions about how well (or not) the organization is doing in fulfilling that mission and vision. No matter the kind of business a particular company is in, crafting mission and vision statements by the use of clear language and describing your purpose is a transformative exercise. It can undoubtedly make a difference to your business.
A company’s mission and vision statements are what your company stands for and where it wants to head in the future. However, mission and vision statements are often confused and used interchangeably. But, that is a big mistake. Let’s looks at one of the major differences: A mission statement is short, a brief explanation of who your company is, what it believes in, and what it is doing to become more successful in the future.
Whereas a vision statement is a “perfect world scenario” as to where your company would like to be in the future. In a way, Mission is more related to how the company carries out its day-to-day activities and vision is more about the aspirations and dreams.
2. Corporate Information
Corporate information includes details of management officials and others associated with the company such as directors, bankers, auditors, and registered and corporate offices. Here one can get detailed information about the board members and their designations. Investors can find additional details of the company if the appointed auditor is reputed.
3. Products Overview
As the name depicts, the product overview section of the annual reports provides details about the products that are being offered by the company and data on each segment’s performance in the last two years.
It helps investors analyze the trend of revenue, earnings before interest, tax, depreciation and amortization (EBITDA), profit after tax from income (profit and loss) statement are a few of the specifics that you will get to analyze. Also, you get a glimpse of shareholder’s equity, assets, debtors, liability, and total debt from the balance sheet over the years.
4. Directors’ report
Directors’ report is predominantly submitted by larger companies at the end of every financial year, small companies or micro-entities are exempted. At the end of each financial year, private companies are required to provide a set of financial reports known as statutory accounts which include directors’ reports. Directors’ report briefs about the financial state of the company and is generally submitted by the company’s board of directors.
The purpose of having a section for the directors’ report in the annual report is to have greater corporate transparency. It helps investors and stakeholders to understand
• Whether the organization’s finances are in good shape
• Whether the company has built the capability to expand and grow in the coming years
• If the company is able to perform well in the market
• Whether the company is successful in complying with financial regulations, accounting standards, and social responsibility requirements.
A standard Director’s report includes the following information:
• Names of all the directors who served during the reporting period
• Trading activities held by the company
• Statements of future prospects
• The core activities of the company
• Significant changes to the company’s fixed assets.
5. Management Discussion and Analysis (MD&A)
MD&A is one of the key sections of an annual report that today’s corporates have adopted to demonstrate their commitment to the company’s vision and strategy. MD&A includes all the activities carried out by all the operating departments of the company such as Board of Directors, Chief Executive Officer and other Chiefs, their reporting officers/ controllers of various departments– Human Resources (People), Finance, Marketing, Production, and Operations, etc and the remaining middle and lower management levels.
The objectives of an MD&A are:
• It assists readers in understanding the numbers and financial conditions while also explaining certain strategic and operational decisions that can largely impact the future performance and position of the company.
• MD&A addresses the investor’s perception of the risks associated with the company.
6. Report on Corporate Governance
This report on corporate governance provides insights on corporate governance followed by a company, structure of the board of directors, brief background information on directors of the company, attendance of directors in board & annual general meetings, remuneration of directors, re-appointment of directors after completing the term, composition of sub-committees and many others.
7. Information on Shares of The Company
Where all the details of the share prices are provided. This section provides insights into the historical performances of the shareholding pattern, pledging of shares by promoters during the year, splitting of shares, and bonus shares distributed by the company.
8. Auditor’s Report
The auditor of the company provides his views and comments about the financials of the company in this section. Investors, here, can get to know the background information such as auditors’ names, qualifications, and experience in the industry.
9. Financial Statements
Financial statements are written records that provide insights into the business activities and core financial performance of the company. These financial statements are generally inspected by government agencies, accountants, and other financial firms to ensure the accuracy of the information on taxes, financing, or investing purposes.
10. Notes to Accounts
This is one section of the annual report that provides information on accounting policy followed by a company such as comments on depreciation method, forex losses/gains, segmental reporting, inventories, liabilities, leases, etc. It’s always advisable to study annual reports of at least 3-5 years as the reader will be able to understand minute details like changes in accounting year or accounting policy that can directly affect the company’s revenue, key operations of the company, financial management’s view/stand in various economic trends.