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All You Need to Know About the Annual Report

Updated on May 18, 2024 , 5247 views

Years back, if you wished to own a company’s stock, you were handed over a smooth annual report. However, nowadays, all you may get are the instructions helping you download this report from the official website of the company.

Even then, this report is an imperative method for you to comprehend the financial situation of the company. Apart from that, this report may also act as an attractive tool to intrigue investors. While investors do read these reports, unfortunately, they Fail to understand them comprehensively.

Annual Report

If you are Investing on the Basis of opinions or strategies, know that you are making a blind investor. To gain success in this endeavour, you must understand the fundamentals of the company. Having said that, read ahead and find out here all that you need to know about stock related annual reports.

What is the Annual Report?

It is a document that is prepared by companies to put forth essential corporative information to the shareholders. Typically, company financial statements have a letter from the chief executive officer, data pertaining to the finances of the company, and information regarding the activities of business during the last year as components of annual report.

While the first half of the annual report could be all about company information, additional news, and Industry trends; the other half is mostly about the financial data.

Things to Learn from an Annual Report

Along with tough financial facts of a company like expenses, sales and profit, you also get to learn more about the way business operates, leadership in the company, and the office culture from the annual report contents.

Several CEOs work hard on their letters. Concentrating on such letters, you can find out the competition, opportunities, challenges, and more struggles faced by the company. This letter may also comprise an explanation of the reasons behind financial figures and insight into the future of the company.

Being a potential investor, you must also be cautious of the risks associated with a company. One such risk Factor is legal proceedings that the company might be countering. The company must disclose these litigation activities to provide a better view to investors.

The content and tone of the annual report can provide essential clues about the company type in which you are investing your money. To be more cautious, look out for signs of friendly management. This will help you have an idea of how the company is dealing with its shareholders.

Apart from this, you must also keep a keen eye on:

  • Executive-owned stock
  • An explicit dividend policy
  • Rational executive compensation
  • Transparent communication

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Deciphering the Truth Behind Annual Reports of Indian Companies

Being an investor, you must understand the difference between what the firm is saying and what does it mean by that. While a handful of companies talk lies, there are some such that may show convenient numbers.

Considering that it is tough to find out a company that speaks unadulterated truth, it is essential that you read cautiously. For that to happen, look for these important factors:

  • Continuity is a crucial factor; thus, make sure that you compare figures with last years to get a proper idea. If you find any figure that is lower or higher than the last years, you must dig deeper. Also, ensure that the figures mentioned throughout the report are matching each other.

  • Next, sales should catch your undivided attention. Generally, companies bring forward sales figures in quarterly results. But, how can you guarantee them being real? First of all, you must add sales of all four quarters to see if the annual figure is matching. Also, keep a tab on account notes to ensure that the company is following accounting policies.

  • Similar to sales, you must also check the net profit. Companies ought to manipulate this figure by providing less or excessive Depreciation. While you can have a combined figure from quarterly numbers, it is the annual report that offers an in-depth breakup of depreciation of each asset.

How to Get the Annual Report of a Company?

Most of the companies post annual reports on their official websites, making it easier for investors to access the same. In case the report is not available on the site of the company you are interested in, you can directly email or Call their investor relations department and ask for the copy.

Components of the Annual Reports

Back in 1929, the government made it mandatory for all sizes and types of public corporations to craft an annual report and show it to the shareholders. The main goal of this report is to suggest the performance of a public company in the past 12 months and it is mainly crafted for the stakeholders of the company so that they can evaluate the performance of the firm and make an informed decision. The shareholders review this report to determine if they should invest in the company or not. The components of the annual report include auditor’s reports, Accounting policies, corporate information, letter to the stakeholders, and more.

Public corporations in the United States have to submit a comprehensive report, Form 10-K to the SEC and they could draft and send this report electronically. Usually, the companies are supposed to submit the annual report when they organize a meeting for the election of the Board of Directors. This report is to be presented to the shareholders of the firm so that they get a clear picture of where the company stands financially. The shareholders decide whether or not it’s worth investing in the firm based on the annual report. Not only does the report have to be submitted to the shareholders, but the companies also have to publish the reports on their official websites.

Why is Annual Report Drafted and Who Reviews it?

The annual reports contain financial information of the company that is mainly used to identify the potential of the organization to pay the debts, how much profits or loss the company experienced in the past 12 months, the growth of the organization in the Fiscal Year, the profit retained by the organization for the expansion, and so on. It suggests the growth plans of the company as well as its ability to grow financially.

Most importantly, this report suggests if the information presented matches the GAAP (Generally Accepted accounting principles). In addition to that, the shareholders and the directors of the company use the annual report to analyze the potential future growth using the stats of the previous year. It isn’t only the investors and shareholders that view the annual report, but customers and even creditors of a company could review this report to determine the financial standing of the company as well as its past performances. The Mutual Fund also has to draft the annual report and submit a copy to the investors.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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