This is a financial document that publicly listed companies prepare each year for their shareholders. It gives shareholders a comprehensive report of the company’s financial performance and activities throughout the preceding year.
Annual Report Details
An annual report contains detailed information about activities that a company participated in during a financial year. The front part of the document contains an array of graphics, photos, and a narrative capturing activities that the company was involved in all year. The back part of an annual report has the detailed financial and operational activities of the company captured in balance sheets, cash flow statements, and income statements.
We can usually find this financial document in a visually appealing booklet that has colorful graphics and photos. While the annual report design may vary from one company to another, the contents are generally similar. The layout may also differ from one company to another. These are the most common details contained in annual reports.
- Letter from the CEO: This is a greeting and summary of what the shareholders will expect to find in the annual report
- Performance highlights: A section dedicated to the company’s achievements throughout the year whose main goal is to attract more investors
- Financial statement: Various financial documents such as balance sheets and income statements showcase the financial health of the company here
- Company forecast: The segment of the document covering the company’s future goals and objectives, forecasts, and plans.
Example of Annual Report
When you need to write an annual report, there are basic principles to keep in mind as you create this vital business document. An annual report typically follows the same format from one organization to the next, but there is some variation. Some sections may be combined or added depending on what the management requires.
The most important thing to keep in mind is the time it will take to compile, design, and print an annual report. Remember that this document carries a lot of information from different departments. It is also vital that you agree on the design and layout of the annual report early on for a smooth process.
A standard annual report will always contain the details outlined earlier. It will also have various contributors to each section. Ensure that you give each contributor ample time to compile their section. Have a dummy layout of the annual report to proofread before the actual printing.
Significance of Annual Report
After the stock market crash in 1929, which was considered the worst economic crisis ever, there came a need for companies to capture their financial records holistically. Thanks to this economic crisis, annual reports became a legal requirement for all publicly traded companies. While non-profits also prepare annual reports, it is a legal requirement that all publicly traded companies prepare this document.
Annual reports carry great significance to shareholders and investors. It helps to show how well or poorly a company is doing. Here are some more important reasons why annual reports are vital to every company.
- They summarize a company’s achievements in the preceding year.
- Stakeholders can see the company’s financial health.
- If a company is doing well financially, then the annual report helps to reassure stakeholders of this.
- It gives investors and shareholders a sense of satisfaction concerning their investment in the company.
- A well laid out and appealing annual report is a good marketing tool as it shows the productivity and profitability of the company to prospective investors.
History of Annual Report
Annual reports are an essential element of publicly traded companies. They are also a legal requirement and made public every year to show how a company is doing. The first-ever annual report was produced by the US Steel in 1903, according to Wikipedia.
This document was verified and certified by Price, Waterhouse & Co. as financially accurate. Of course, there were some forms of financial data records by various companies, but this one took the earliest form of an annual report.
Annual Report Vs. Financial Statement
We often use these two terminologies interchangeably, while there is a world of difference between them. They do have a few similarities, but the two terms do not mean the same thing.
An annual report is a document that could be considered a report card showing a company’s performance in a preceding year. It shows a company’s financial performance and the future strategies that the company will implement for growth. It offers a more holistic view of a company’s performance.
A financial statement, on the other hand, shows the financial performance of a company. It captures the loss and profits in balance sheets and assets and liabilities owned and owed by the company. Financial statements show the financial position in the preceding year and how the company cash flow throughout the year was. In a nutshell, financial statements are all about money, while annual reports cover more than just the money.