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From Wikipedia, the free encyclopedia

An annual report is a comprehensive report on a company's activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company's activities and financial performance. They may be considered as grey literature. Most jurisdictions require companies to prepare and disclose annual reports, and many require the annual report to be filed at the company's registry. Companies listed on a stock exchange are also required to report at more frequent intervals (depending upon the rules of the stock exchange involved).

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  • ✪ How to read an annual report
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How to read an annual report? This is a quick tutorial that covers my personal approach of reading annual reports, which is part of what I do for a living as a Finance Storyteller. By no means do I claim that a short tutorial offers a comprehensive overview, but I do hope I can help you get started on your journey! I would love to hear about your experiences of reading an annual report in the comments below. First question to ask yourself: WHY? Why do you read an annual report? Are you a current or prospective investor that wants to evaluate whether a company is a good investment opportunity? Are you an employee or applicant that wants to know how the company is doing and where it is heading? Are you a student that needs to analyze an annual report to write a paper? Before you start reading an annual report, define your guiding question! If you have a clear guiding question, your brain will focus on sorting through the information and look for the answers. Decide which version of the annual report you want to use! The online interactive version that has videos and easy navigation? The full-color download version of the annual report? The official filing to the Securities and Exchange Commission on form 10-K? Or the hardcopy printed version where you can underline the sections that you find important, add your question-marks and exclamation marks, and write down your calculations next to the text. Find a version that works for you and get started! Set yourself a time limit. I recommend setting yourself a time limit of one hour for your initial research. Annual reports have a typical length of 100 to 150 pages, though I have seen some as short as 70 pages and some as long as 300 pages. It is unlikely that you will want to read an annual report from front to cover. With a time limit of one hour (no more, no less), you do some justice to the depth and complexity of an annual report, and at the same time the time limit hopefully helps you to avoid going down a rabbit hole (in other words: getting stuck in trivia) without seeing the big picture. Spend sufficient time on both the narrative and the numbers! I usually split my time 50/50 between them. On the narrative side, I start with reading the "letter to the shareholders" which usually gives a good amount of information about what the CEO wants you to know about the company's vision, strategy, and execution. Then I turn to the section on business risks, to familiarize myself with the risks that might adversely impact the company. Both of these narrative sections tend to be up front in the table of contents of an annual report. On the numbers side, I start with the 1-page financial summary which often contains graphs and tables on what the company considers to be the key performance indicators, and then I turn to the income statement, cash flow statement and balance sheet to perform my own independent evaluation of the financial results. On the income statement, which gives you an overview how much profit a company made during the year, start with a vertical scan. Go up and down the income statement and look at the key numbers of revenue, operating income and net income. What are these numbers in absolute terms? How do they look on a relative basis: operating income as a percentage of revenue, and net income as a percentage of revenue? What are the biggest categories of cost in the income statement? Next up: a horizontal scan, what does this year look like compared to previous years? Is there growth or decline, and by what percentage. I will link to a related video where I show you a step by step example of how to analyze an income statement. On the cash flow statement, start with the main equation on the highest level: what was the starting cash balance and ending cash balance of the year, and which cash inflows and cash outflows caused the cash balance to go up or down. Just like with the income statement, you can then do a vertical scan to look at the biggest line items, and a horizontal scan to look at the year-over-year changes. On the Finance Storyteller Youtube channel, I have several case studies available for you on how to analyze a cash flow statement. On the balance sheet, look at what a company owns (assets) and what a company owes (liabilities and equity). Where are the company's assets concentrated: financial assets such as cash, accounts receivable and marketable securities? Fixed assets (property, plant and equipment)? Or intangible assets like goodwill? How is a company financed: do they have a lot of debt, or is the right-hand side of the balance sheet primarily made up of equity? If the alarm goes off after an hour, summarize what you have learned about the company so far by answering your guiding question, and listing the datapoints that you base that answer on. If you decide that you want to allocate more time for your review of the annual report, then define how you are going to "peel the onion". How are you going to dig in deeper, layer after layer, to uncover what you are looking for in the annual report? Which line items in the income statement, cash flow statement or balance sheet do you want to investigate? Which terminology do you need to understand before you can make sense of the next level of complexity? Many of the terms used in income statements, balance sheets, and cash flow statements, are described in detail on the Finance Storyteller YouTube channel. In the management discussion and analysis section of the annual report, or the notes to the financial statements, companies provide detailed explanations of what makes up certain line items, and how they have developed over the years. Bonus tip! Calibrate what you are looking at. An annual report covers twelve months, but which twelve months? Many companies report by calendar year, from January through December. There are a lot of exceptions, where companies define their fiscal year differently. For example, Microsoft's fiscal year runs from July through June. Apple's fiscal year runs from October through September. Walmart's fiscal year runs from February through January. Make sure you check the dates, to know what you are looking at! That wraps up the overview of how to read an annual report. It's time for you to get started by diving into the annual report of your choice. Let me know what you find! Thank you for watching! If you enjoyed this explanation of how to read an annual report, then please give it a thumbs up! On this end screen, there are a few suggestions of videos you can watch next. Please subscribe to the Finance Storyteller YouTube channel! Thank you.

Contents

Contents

Typical annual reports will include:[1]

Other information deemed relevant to stakeholders may be included, such as a report on operations for manufacturing firms or corporate social responsibility reports for companies with environmentally or socially sensitive operations. In the case of larger companies, it is usually a sleek, colorful, high-gloss publication.

The details provided in the report are of use to investors to understand the company's financial position and future direction. The financial statements are usually compiled in compliance with IFRS and/or the domestic GAAP, as well as domestic legislation (e.g. the SOX in the U.S.).

In the United States, a more-detailed version of the report, called a Form 10-K, is submitted to the U.S. Securities and Exchange Commission.[2] A publicly held company may also issue a much more limited version of an annual report, which is known as a "wrap report." A wrap report is a Form 10-K with an annual report cover wrapped around it.[3]

Directors' Role

Statement of Directors' responsibilities for the shareholders' financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable Law of the Republic of Ireland, including the accounting standards issued by the Accounting Standards Board and published by The Institute of Chartered Accountants. Irish company law requires the directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing these financial statements, the Directors are required to:

  • select suitable accounting policies and then apply them consistently
  • make judgements and estimates that are reasonable and prudent
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business

The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements are prepared in accordance with accounting standards generally accepted in Ireland and with Irish statute comprising the Companies Acts 1963 to 2009...

History

In 1903, U.S. Steel published an annual report whose financial accuracy was certified by Price, WaterHouse & Co. in what is known as the earliest modern corporate annual report.[4]

'Alternative' annual reports

Certain groups such as The True Cost Of Chevron Network have released 'alternative' annual reports as a way to highlight ongoing environmental destruction and/or human rights abuses committed by a particular company.[5]

See also

References

  1. ^ Annual Report and Accounts - Contents http://tutor2u.net/business/accounts/annual-report-and-accounts-contents.htm
  2. ^ Dictionary of Finance and Investment Terms by John Downes and Jordon Elliot Goodman Barron 1995 ISBN 0-8120-9035-7 page 23
  3. ^ "Wrap Report Definition". AccountingTools. Retrieved 2013-08-27.
  4. ^ Wessel D. (2002). When Standards Are Unacceptable. WSJ.
  5. ^ The True Cost Of Chevron, An Alternative Annual Report, May 2011 http://truecostofchevron.com/2011-alternative-annual-report.pdf Retrieved 19 July 2017

External links

This page was last edited on 26 May 2019, at 22:05
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