An Annual Report presents the company’s audited accounts for the previous year as required by the corporate regulations. Annual Reports helps the investors in deciding and judging the financial and operational conditions of a company. It is essentially prepared for the owners of the business i.e. as per law, a company is required to provide a copy of the annual report to each of its equity shareholders, giving an account of the annual performance.
An annual report generally comprises the following:
- Financial Statements comprising Balance Sheet, Income Statement i.e. P&L Statement and Cash Flow Statement along with other supporting documents usually known as Notes to Accounts.
- Auditor’s report on the financial statements of the previous year
- Board of Directors’ Report – review by the board of director of the company, its financials, internal controls, subsidiaries, key developments during the year among other
- Management Discussion and Analysis - management’s review of the operations of the firm and their view on the future prospects of the company
- Corporate Governance report comprising the board and various committees of the board, their composition, meetings during the year, shareholding pattern, stock price performance for the year
- Other Statutory reports such as AGM Notice to Shareholders along with Explanatory Statement, Secretarial Audit report, Dividend Distribution policy, Corporate Social responsibility (CSR), conservation of energy, technology absorption and foreign exchange earnings and outgo report
- Others – Letter to shareholders from the Chairman/Managing Director, brief profile of the company, its plant and sales office locations, names of bankers and registrars, product details and brands, number of employees etc.
Some of the important things an investor should analyse in the annual statements of a company are the forecasts and vision of the company by comparing them with the data provided for the past years. The annual report also gives a sense of theme that has been presented by the company and its subsidiaries or sister companies. The milestones acquired by the company since its inception and specifically in the last few years (like a 5 year or 10 year financial table) are usually represented separately to emphasize and understand the growth story of the company and create a sense of awareness in the eyes of investors.
The annual reports are prepared keeping in mind the needs and requirements of the current shareholders and prospective investors in the company. Other interested parties in the annual report are usually the employees, suppliers / creditors, customers of the company. It gives an opportunity to the management to praise the quality of work, commitment of employees. This increases the value of the company along with a psychological motivation for its employees.
Annual Reports also involves the CSR activities conducted by the company, sponsorships and benefits provided to the community to garner reputation among the community in which they work and also portrait the company as a proactive member of the community.