Even if you are an avid investor, nothing is more boring than a company's annual report. Reading an annual report is like eating your veggies. The information is good for you, but the taste is underwhelming. Luckily, unlike eating your veggies, you can skim an annual report for crucial information on whether or not you should buy, hold or sell:
The Letter To Shareholders, Round One: In this letter, leaders explain how the company did over the past year. Do not take what is said at face value. You will read this letter twice because you should check what the leaders say against the numbers presented in later sections of the annual report.
Balance Sheet: How do the assets stack up against the liabilities? How liquid is the company right now in terms of assets? Do they have easy access to cash? Look at the Shareholder's Equity, which is assets minus liabilities. A negative result means the company is in trouble and has been for some time. Go back to the letter to shareholders, and spend more time with the annual report to find out why the number was negative. If the result seems unusually high, then the company might not be doing enough with the cash it has available.
Income Statement: Did the company make money this year? What was the profit? Was the profit higher or lower than the year before? Which aspect of the business generated the most income this year?
Cash Flow: Now you can find out what might be cutting into the company's profit. Is more money coming in than going out? If more money is going out, why? Are they investing in developing something new? Did they just buy out a competitor? Was there a lawsuit? The cash flow statement is divided into operations, investing (specifically, the company investing in its own improvements) and financing (money-raising) cash flows so you have a better idea of where the money is going.
The Independent Audit: As long as the auditor itself is scrupulous, the independent audit will tell you what you need to know without any marketing gloss.
The Letter To Shareholders, Round Two: Now that you have taken a look at the balance sheet, income statement, cash flow and independent audit, do you like what you see? Or are you still wondering why the company took such a nosedive or how the company is even making money? Read the letter again to see how leaders are spinning the company's current condition. Did the leaders present the situation accurately, or does it seem as if they are out of touch with reality? If their words seem way out of line with the numbers, then perhaps it is a sign of trouble.
Corporate annual reports provide investors with a wealth of information, combining a company's yearly financial performance along with the company's commentary on both past and present performance. Before investing in a company, you should obtain a copy of the company's annual report and read it thoroughly in order to get a better feel on the company and its current situation.
When it comes to writing a business report, knowing the intended audience is critical in determining how to proceed, and then making sure the finished product meets the readers' expectations. More than likely, your boss assigned you the project of preparing the report for analyzing the business, and you need to start by making sure you know what their goal is in having you prepare the report.