Annual Report. MarketCheese

An annual report means a document containing data on the yearly results of the enterprise’s activities that is rendered to its shareholders. The front section usually includes a mix of graphics, images and related narratives, where there are firm’s activities for the recent year, and, in certain cases, even forecasts about its prospective transactions. The back section touches upon exact details of the enterprise's financial operations.

Essence of Annual Report

The annual report is submitted to state bodies, in particular to the tax office, and is also reviewed by the company's stockholders. These documents were set as normative following the stock market crash. At that time, regulators established fixed group financial reporting. Notably, the target of the annual report is a duty of publicity about day-to-day corporate operations that is extended to shareholders and other concerned parties. So that financial performance can be estimated, and, as a consequence, decision-making comes into play.

As a rule, the annual report includes the parts:

shared information about the firm;
core financial indicators;
letter to the stockholders from the Chief Officer;
textual description, graphics and images;
management discussion and analysis;
accounts statements with the balance sheet, earnings report, and funds flow statement;
comments to the accounts statement;
audit opinion;
resume of financial data;
accounting practice.

Note: existing and prospective investors, staff members, lenders, as well as other parties involved could provide insight into the firm due to its annual report.

Extended version of the annual report is known as Form 10-K. It should be submitted to the SEC in digital format. Disclosing firm must render its annual reports to the stockholders at the yearly meetings. Under the rules governing powers of attorney, these enterprises are obliged to place the proxy records on their own sites.

Specific notes

In other words, an annual report is a yearly statement of the financial standing of a publicly traded company.

This type of reporting allows to complete the following actions:

To check a firm's ability to settle debts at maturity.
To estimate a return or damage in the company’s fiscal health in the recent year.
To determine a slice of the profits dedicated to business expansion.
To evaluate an internal growth of the enterprise in the space of a few years.
To bring into correlation the transaction expenses and received earnings.

In addition, the annual report specifies whether financial data corresponds to the GAAP, i.e. a set of standards for bookkeeping operations and accounting. This clause is even highlighted in the audit opinion.

Open-end investment funds

Considering mutual funds, there is a need in the annual report that is deferred to as a binding instrument for the firm at the end of fiscal year. It uncovers a few aspects of the financial situation in an open-end investment fund. As opposed to the annual reports of an enterprise, mutual fund’s reporting is much simpler with regard to its introduction.

These documents are a source of long-term data and fund’s operating results. On the downside, much of the information refers to quantitative in nature, especially in case of compelling disclosure of accounting data.

All open-end investment funds filed to the SEC, are obliged to provide a complete report to every stockholder on the yearly basis. So, the annual report reflects the proper way of an organization's functioning.

The data represented in the annual report is as follows:

tables, charts and graphs of deposits by classes (sector of industry, repayment period, etc.);
annual audited accounts with a full or pared-down list of deposits;
compressed financial records;
table with fund’s profitability for the periods of 1, 5 and 10 years;
management’s discussion of organization’s capacity levels;
administrative overview about career executives and qualified persons;
fees and compensations distributed to staff members.

Writing Annual Reports

As a rule, the first pages of the annual report are represented by a letter, where the corporation’s top management informs its shareholders about the results of the firm’s activities, along with the future prospects. The last point is most often made in the form of a narrative commentary, taking into account the sensitivity of quantitative sales and earnings’ forecasts to various factors. These disclosures are usually put into practice in countries with relatively well-developed stock markets, such as France, Germany, the Netherlands, the U.K. and the U.S.

The section with basic financial indicators forms the key statistics, often illustrated with graphs. An overview of financial performance for 10 years is usually presented in the annual report below. Note that the ratios often include non-financial data, for instance, the number of plants worldwide.

Further, it contains a detailed description of the company's products and divisions. Some analysts tend to be skeptical about this section of the annual report as it usually contains glaring photographs and other image-building material. But it may also contain valuable information about past performance and future plans.