Annual Report

What is an Annual Report?

An annual report is a comprehensive financial statement published yearly by a company which outlines the company’s financial performance and corporate operations for the last year.

The annual report includes a variety of financial statements and reports related to the company’s operational performance, such as its income statements, balance sheets, cash flow statements, statement of changes in equity, notes to the accounts, and management discussion & analysis.

These statements are made available to the public and provide shareholders and other investors with a clear and up-to-date overview of the business and its financial performance.

Investors and analysts use the annual report to identify potential opportunities and threats the business may face over the next 12 months. They are also used as a basis for taking investment decisions and assessing the long-term outlook of a company.

What's in an Annual Report?

An annual report typically includes the following information:

  • The company’s current financial position
  • Highlights of the year’s major developments and successes
  • Historical background
  • Directors’ report
  • Audited financial statements
  • Management discussion and analysis
  • Recent announcements
  • Corporate policies
  • Financial ratios and statistics
  • Shareholder and analyst information
  • Additional related information

The depth and frequency of financial information given in the annual report can vary depending on the company and regulation.

Benefits of Reading an Annual Report

Regularly reading an annual report can provide tremendous insight and information about a company’s operations and financial performance. Key advantages of reading an annual report include:

  • Gain insight into a company’s strategy, operations, and financial performance
  • Learn about a business’s competitive position in relation to its peers
  • Measure a company’s financial strength and analyze the flow of money through the business
  • Assess management’s strength and their track record
  • Understand corporate policies
  • Monitor executive compensation
  • Identify expansion, new initiatives, and acquisitions
  • Find ways to invest in a company

How to Read an Annual Report

Start by reading the letter sent by the CEO or chairman of the board. It will include the company’s performance over the past year and their plans for the future. Once you’ve got the overview of the company’s situation and the strategy moving forward, it’s time to dive deeper into the financials.

The next step is to review the income statement. The income statement will show a company’s total revenue, operating income, and net income. This will provide an overall snapshot of how the company is doing financially for the period covered.

The balance sheet is next, and it shows the company’s assets, liabilities, and shareholder equity. Look for items such as account receivables, current liabilities, long-term debt, and how equity has increased or decreased.

Finally, review the statement of cash flows. The statement of cash flows shows how much money the company has brought in from its operations, how it’s spending its money, and its free cash flow.

An annual report offers a great deal of information for investors and should be reviewed regularly. Taking the time to understand the contents of an annual report can help provide insight into a company’s operations and financial health, and aid in making informed investment decisions.

Examples of annual reports

One of the most famous exemple of annual reports are Berkshire Hathaway annual reports made by the famous investor warren Buffet. It provides an excellent example of how detailed and comprehensive an annual report can be and are a must-read for any investor to understand how Warren Buffet thinks and operates his business, why the invests, and what strategies he employs.

For smaller companies, SEC EDGAR is a great online source for annual reports. Here you can find financial statements, management’s discussion & analysis, executive compensation reports and additional documents from larger companies that must file with the SEC under the U.S. Securities Exchange Act.

Annual reports can also be found on a public company's website. Here are some examples:

The first page of the annual report is generall in a standardized format and looks like this:

Meta Income Statement

As an investor, reading annual reports can provide crucial information to help parties make important decisions about where to invest their capital and which stocks or companies to avoid. Reviewing an annual report can also give investors an edge when it comes to making educated decisions about their investments.

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