An annual report is a document issued by public companies to provide shareholders with important corporate information.
The majority of jurisdictions instruct companies to prepare and disclose annual reports, many of which are filed at the company’s registry.
The main aim of the annual report is to provide a summary of how well (or badly) a company has performed over the past 12 months, and to provide a glimpse of things to come. Creating a compelling annual report is considered today as a real art and science. There are companies that specialize in preparing them.
Most annual reports include at least the themes mentioned above.
Companies listed on a stock exchange are usually required to report at more frequent intervals. However, this also depends on the guidelines of the stock exchange the company is listed on.
An annual report usually begins with an opening letter from the Chief Executive Officer, followed by financial data, results of continuing operations, information about its market, products that are in the pipeline, its subsidiary activities, and research and development.
Typically, the cover and first few pages of the report contain graphics, photos and accompanying narrative, all of which detail what the company has achieved over the past year. This is followed by detailed financial and operational information.
Annual reports are sent to shareholders on an annual basis, this happens when the company holds its annual meetings to elect directors.
According to the dictionary Merriam-Webster, an annual report is:
“A usually lengthy report issued yearly by an organization giving an account of its internal workings and especially its finances.”
1929 crash prompted better financial reporting
After the stock market crash in 1929, legislation was passed that made the annual report a key component of corporate financial reporting. In the United States, a more-detailed version of the report, called a Form 10-K, is submitted to the U.S. Securities and Exchange Commission. A Form 10-K must be filed within 90 days after fiscal year end, while a Form 10-Q is filed on a quarterly basis.
American companies can submit their annual reports electronically via the SEC’s EDGAR database. This is also a useful tool for when someone is looking for corporate and financial information of a publicly traded company.
Video – Reading a Financial Statement
Professor James Webb, from the Crowell School of Business, explains how to read a financial statement.