WHAT IS AN ANNUAL REPORT?
One thing which scares every student is his/her report card, as it summarises the complete performance of past tenure. Same is applicable in case of annual report of a company. It is a declaration made by the public corporations annually to shareholders, describing their operations and financial conditions. The forepart of the report contains the main postulates in a graphical format which shows the performance of company. The back portion contains all the details of the abbreviated information given on front part.
CONTENTS OF ANNUAL REPORT:
After the stock market crash of 1929, annual reports became a consistent constituent of corporate financial reporting. The goal of the annual report is to announce, company’s corporate activities during the past year. Generally the report is disclosed for the shareholders, other stakeholders and interested investors to assess the firm’s financial performance. On the basis of this report they decide their future step.
An annual report usually consists of following components:
• Letter to shareholders from CEO
• Corporate information
• Operating and Financial heights
• Narrative text, graphics and photos
• Management’s discussion and analysis
• Financial statements, including the balance sheet and cash flow statement
• Notes to the financial statements
• Auditor’s report
• Summary of financial data
• Accounting policies
UNDERSTANDING ANNUAL REPORTS:
The annual report consists of data of a company’s financial performance, which is used to determine:
• Ability of an organisation to pay its debts
• Final outcome of all its operations, i.e. whether a company incurred profit or loss
• How much amount of earnings is intended to be invested further and how much will be paid to shareholders
• The expenses to earnings ratio
• It also determines whether the information comply with accounting principles. Non-compliance of information with pre-defined principles has been the reason for sudden removal of CEOs.
On the basis of these understandings, fundamental analysts attempt to forecast future stock price of a company.
ANNUAL REPORT OF A MUTUAL FUND:
In case of mutual funds, an annual report is a document which is made available to its shareholders on a fiscal year basis. A fund’s operations and financial condition is disclosed in the annual report. In contrast to corporate annual reports, the annual reports of mutual funds are described as “plain vanilla” in terms of their presentation.
Information available in annual reports of mutual funds:
• Categorical information (Eg: type of security, industry sector, geographic region, credit quality or maturity) of holdings in the form of table, chart or graph.
• Audited financial statements with complete or major (stocks forming the major part of portfolio) list of holdings
• Condensed financial statements
• Table showing fund’s return in last 1 year, 5 years and 10 years
• Management’s discussion on fund’s performance
• Compensation paid to directors and officers
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