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. What can you learn from an annual report? You might be surprised.
Annual reports contain comprehensive performance information.
First and foremost, an annual report is a compilation of a company's performance information. Most annual reports contain a financial summary that goes back years, detailed financial statements for recent information and even an opinion letter wherein a CPA analyzes a company's financials. This is the first information you should review as a potential investor. The annual report contains plenty of other useful reading that may ultimately determine your investment strategy, but start by looking for a company with strong financials. If this information is vague or missing, the company could be trying to hide poor performance.
What the financial sections of an annual report tell you.
Financials are useless if you don't know how to interpret them. Start by breaking the financials down into their three component statements: income statement, cash flow statement and balance sheet. Many novice investors focus too much attention on the income statement. Yes, it's good for you as a shareholder that the company makes money, but that's only one aspect of financial performance.The cash flow statement is arguably the most important financial in an annual report; it tells you how the company is getting its money, and how it intends to finance future operations and growth opportunities. Companies disappear overnight because of numbers reflected on the cash flow statement, so learn to pay attention to it.
Finally, the balance sheet tells you about the company's current assets and liabilities. Pay attention to liabilities; a company that owes a lot but doesn't have the income or cash flow to pay it may be facing financial trouble.
The Chairman's Address and Management Messages are vital parts of an annual report.
The financials are arguably the most important part of an annual report, but they don't give a complete picture about the company. The Chairman's Address and Management Messages are useful to help you determine what the company is doing, and whether or not you want to make an investment.
The Chairman's letter to shareholders is typically a snapshot of recent company performance, what the company is currently doing and its strategies going forward. Management discussion and analysis can be a useful sidebar for the Chairman's Address, or could be useless fluff designed to keep shareholders happy.
Read carefully between the lines in these two sections. Some companies try to mask poor performance with fancy PR spin and avoid really addressing issues and goals. Other companies develop a strategy for dealing with challenges, and it can be reassuring for investors to know that a company has a plan for dealing with adversities and meeting goals.
 | Learn how to gauge the financial health of a company through an annual report. |
 | 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. |
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. Luckily, unlike eating your veggies, you can skim an annual report for crucial information. |
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. |
