What is an Annual Report?
Have you always wonder why companies release their annual report?
The purpose of the annual report is providing financial information that public companies are required to disclose their corporate information to shareholders.
Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors. Under the proxy rules, reporting companies are required to post their proxy materials, including their annual reports, on their company websites.
What information is contained in an annual report?
In the-company report structure, annual report contents include the following:
- An opening statement from the Chief Executive Officer
- Highlights of the company’s activities over the past year financial data
- Financial statements which include the balance sheet, income statement, and cash flow statement
- Auditor’s report
Most companies that produce an annual report to investors need to be audited by an independent accounting firm. The company performs a yearly audit for transparency to its shareholder. Inclusion of the auditor report is for certifying the financial results. The addition of these accreditations by both the auditors and the firm’s administration ended up being monumentally more important complying with the passage of the Sarbanes-Oxley Act of 2002
- Results of operations
- Summary of the market segment
- New product plans
- Subsidiary activities
- Research and development activities on future projects.
- Proxy & Voting Information
Importance of the annual report
This is an opportunity to engage different parties who is interested in the company. Having a transparent financial report allows shareholders and employees to have a better understanding of financial health and have greater confidence in the company direction.
Benefits of the annual report
The purpose of the annual report is to let shareholders find out if the company is making a greater profit or have exciting products, future plans which will translate to dividends. There will also be market confidence resulting improve share price in the equity market.
Target audiences for the annual report:
Let us think about the different target audience who is interested in the annual report. They are namely shareholders or the stakeholders of the company, industry associate and its rival, employees and potential hire.
Shareholders and investors
Shareholders and investors are primarily the ones who are interested in the annual report. The annual report allow them to have an informed decision on whether to hold the stocks or sell them. The company outlook from the balance sheet and future activities would give the shareholder insight into how well the company is performing.
Industry associates and rivals
The company industry associates will look into the annual report to find out whether the company has any cash flow issues, or can use to project its own financial year demand on the business dealings with the company. Successful companies can also use it annual report to highlight its measurement of quality and innovative products to reinforce their expectation for other prospective suppliers. The industry rivals use the annual report to get good information on sales projection to improve its own processes and set targets to grow its market share in different areas. Similar to the company industry associate, it uses competitor products as a benchmark for its demand planning.
The annual report fulfils several objectives to engage its employees. The company management can use it to highlight distinct innovation for a particular department or employee contribution which lead to the success of the business. Besides that, new product pipeline, project growth and various market expansion can be found within the annual report which will have an impact on its company workforce.
The transparency from the annual report allows the employee to better understand the different department functions of the company. This will further enhance cross-collaborative initiative which may lead to cost savings. Unlike shareholders, employees invest time and effort to create an impact on the company profits which is rewarded through the bonuses.