While MBA students have to know how to read annual corporate reports, anyone who is thinking about investing should know how to interpret these documents, too. And, when job hunting, an annual report can help you learn how a potential employer is doing. Obtain annual reports from the company's website under its Investor Relations tab. Here is the MBA's guide to reading annual reports.
Be cautious that you don't judge the report by its cover. Pretty packaging has no bearing on the company's performance. While glossy pages may hint at more successful businesses, the uninitiated report-reader may find that they often distract from the facts and figures inside.
The most important aspects of the annual report are the letter from the chairman of the board, the sales and marketing section, the financial statements, the letter of CPA opinion, and the management discussion and analysis.
Chairman's letter. This letter generally comes first in the annual report. While it sums up the company's achievements from the previous year, it is more than a pat on the back from the management team to its employees. This letter also addresses future goals and past problems that still may need solving. You'll find valuable information here as to the overall performance and growth potential of the company.
Sales and marketing section. The sales and marketing portion describes the services and products the company offers. It also explains the business groups and divisions, as well as their individual responsibilities and importance to the company's overall success. Pay particular attention to this section if you're looking for a job.
Financial statements. Not only will you find fiscal performance statistics in this section, but you'll also learn important information about the company's structure. The financial statements usually contain a balance sheet, an income statement and a cash flow statement, but additional reports may be included, too. Another noteworthy detail would be the footnotes. These may include annotations about the business structure and financial status that you won't find anywhere else, such as management reorganization factors and bad-debt write-offs.
Letter of Certified Public Accountant opinion. The CPA opinion letter lends the financial section of the report credibility by validating, or contradicting, the data interpretation by management. In essence, it audits the financial statements of the company. When reading the CPA opinion, look for affirmative statements that coincide with management's evaluation in the financial statements.
Management analysis and discussion. This section discusses the economic trends within the corporation over a multiyear time span. It allows the reader to assess the past performance trends to see if the company is headed for growth or trouble in the future.
Annual reports may contain at least three other sections: a register of all brands and subsidiaries with contact information, a complete list of senior staff from the president to the chief financial officer and a brief history of company stock trends.
If a business is more than 10 years old, the annual report may also include an outline of financial results for the past decade. Look for trends in gains and losses in this 10-year summary to evaluate the future of the company.
Whether you are researching a company to invest in or you hold shares with a company and want to see how their affairs are going, getting a copy of the annual reports can answer any questions you might have. |
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Annual reports are your pipeline directly into company objectives and performance. If you're considering investing in a company, or want to know how your investment is doing, an annual report is the first place you should look. |
