What Is an Annual Report?
An annual report is a publication that public corporations must provide annually to shareholders to describe their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos, and an accompanying narrative, all of which chronicle the company's activities over the past year. The back part of the report contains detailed financial and operational information.
What Is an Annual Report?
Understanding Annual Reports
It was not until legislation was enacted after the stock market crash of 1929 that the annual report became a regular component of corporate financial reporting. The intent of the required annual report is to provide public disclosure of a company's corporate activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to evaluate the firm's financial performance. Typically, an annual report will contain the following sections:
General corporate information
Operating and financial highlights
Letter to the shareholders from the CEO
Narrative text, graphics, and photos
Management's discussion and analysis (MD&A)
Financial statements, including the balance sheet, income statement, and cash flow statement
Notes to the financial statements
Summary of financial data
In the U.S., a more detailed version of the annual report is referred to as Form 10-K and is submitted to the U.S. Securities and Exchange Commissions (SEC). Companies may submit their annual reports electronically through the SEC's EDGAR database. 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.
Current and prospective investors, employees, creditors, analysts, and any other interested party will analyze a company using its annual report.
The annual report contains information on a company's financial position that can be used to measure:
A company's ability to pay its debts as they come due
Whether a company made a profit or loss in its previous fiscal year
A company's growth over a number of years
How much earnings is retained by a company to grow its operations
The proportion of operational expenses to revenue generated
The annual report also determines whether the information conforms to the generally accepted accounting principles (GAAP). This confirmation will be highlighted as an "unqualified opinion" in the auditor's report section. Fundamental analysts attempt to understand a company's future direction by analyzing the details provided in its annual report.
An annual report is a publication that public corporations must provide annually to shareholders to describe their operations and financial conditions.
It was not until legislation was enacted after the stock market crash of 1929 that the annual report became a regular component of corporate financial reporting.