Annual Report 101

Annual Report 101: Why it’s Important and What it Should Contain

What is an annual report?

An annual report is a document that public corporations are required to provide to their shareholders. It provides information about the company’s operations and financial condition for the past year.  This report typically includes graphics, photographs, and other forms of data and narratives to present the information in an engaging way. 

Why is an annual report important?

Annual reports are important for a number of reasons. They provide investors with insights into the company’s financial performance, which can help them make informed decisions about whether or not to invest in the company.

Annual reports also provide information about the company’s operations, which can help investors understand the company’s business model and its prospects for future growth.

What should an annual report contain?

According to the United States Securities and Exchange Commission (SEC), an annual report must include the following:

  • An opening letter from the Chief Executive Officer
  • Financial data,, including the balance sheet, income statement, and cash flow statement 
  • Results of operations
  • Market segment information
  • New product plans
  • Subsidiary activities
  • Research and development activities on future programs
  • Auditor’s report
  • Accounting policies
  • Notes on the financial data

The annual report must be sent to their shareholders after their annual meetings where they elect directors. Companies are also required to post their annual reports and other proxy materials on their company’s websites. 

Versions of the annual report

In addition to the standard annual report, companies may also file a Form 10-K with the U.S. Securities and Exchange Commission (SEC). Annual reports and Form 10-K are quite similar in that they are shared with investors and shareholders, and it is the last yearly report to be made. Form 10-K is a more detailed version of the annual report submitted to the SEC. It mainly contains numerical data and other qualitative information like risk factors, analysis of financial conditions, and results of operations. Public companies also file another report called the 10-Q with the SEC which reports the company’s quarterly earnings.  

Mutual funds are required to send a full annual report to their shareholders every year to indicate how the fund has performed over the fiscal year. 

What else can an annual report help with?

Apart from investors getting insights into the financial position of the company, the annual report can also indicate other things such as:

  • A company’s ability to pay off debts
  • Company growth over time
  • Profits or losses incurred

In short, an annual report is one of the most important documents for businesses of all sizes and demonstrates the company’s past, present, and future performance.

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