The single source of getting information about any company whether it is the past or present performance or for that matter, the future outlook, detailed financial performance through the financial statements, corporate governance or CSR activities, all is compiled in the Annual Report of the company. It helps in assessing the year's operations and provides the company's view of the upcoming year and future prospects. It is a report that each company must provide to its shareholders' at the end of the financial year, rather it is a report that every investor must read. It is the most comprehensive means of communication between a company and its stakeholders, rightly called the pinnacle of corporate communications.
The major components of the annual report mirrors the psyche of the company, giving a fair idea on the sustainability of business and how sound the business is.
a) Profit and Loss statement: It is the financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time. It clearly indicates how much was earned and what went into getting those earnings.
b) Balance Sheet: This provides the summary of the assets and liabilities of a company. It gives a fair idea of what the company owns and what it owes.
c) Cash Flow: Cash Flow Statement is the accounting statement that provides the details of how much cash is generated and used by the company over a specific period of time.
Although one would have all the information about a company readily available, there are certain things to keep in mind while browsing an annual report.
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An annual report provides information on the company’s fiscal year. The financial information provided in the annual reports helps determine the current status of business, how the company is funding operations and growth, and how good the company is placed at making money for its investors.
Annual report is considered as the main accountability mechanism. Accountability is a pre-requisite, as it gives an idea of how far the company has met its responsibilities towards its owners, and fulfilled the role defined, which through the financial reports should reflect the extent of performance that are related to the entity.
The objective of reporting the financial statements' is to inform about the performance of the company that could be helpful to a wide range of potential users for evaluating and making economic decisions.
In addition to providing financial information, an annual report serves as a marketing tool for the company. Inclusion of positive feedbacks from employees and customers or key developments in the company worth highlighting can increase the readership of the report and appeal to new investors and customers.
Annual reports provide information on the company’s mission and history and summarizes the company’s achievements in the past year. The achievement section also includes information on aspects like sales increases and factors related to growth in profitability and productivity. This serves the purpose of making the shareholders and stakeholders feel good about their investments or participation in the company.
Current shareholders and potential investors are the primary audiences for annual reports. By and large it is also required by lenders, banks and potential employees for taking appropriate financially viable decisions.
Although the annual report serves as a communication tool and determines the reality of the organization in the public mind, it depends on the quality of information provided in the annual reports. That is why, it is important to filter the annual report for the information provided and gauge its relevance before taking any investment decisions.
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