Question

What is an annual report? What are some of the things it contains beyond the financial statements? What can it be used for? Why is the "notes" section of the annual report so critically important?

Answer 1

An annual report can be defined as a report containing information about company's activities during a particular year. This information is intended to be given to shareholders, media and other interested person who wants to know the company's financial and operational performance.

Some of the things that the annual report contains beyond the financial statements are as follows:

i. Notes to accounts accompanying the financial statements.

ii. General view of the industry in which the company is operating.

iii. Company's Vision and Mission statements.

iv. Section of Management Discussion and Analysis, commonly known as MD&A.

Annual Report can be used for the following purpose:

i. The income statement contains details of sales and profit margins achieved on those sales, which can provide an insight to the investor who is looking to invest in the company going forward.

ii. The balance sheet contains a detailed statement of the company's current assets and also the debt burden on the company. This gives signals to the investor about the liquidity and indebtedness of the company.

iii. Further if the company operates in multiple segments, the annual report can show investors which areas of the company are performing well and which areas are in declining trend.

The notes section of the annual report is important because the income statement, balance sheet gives an overview of the company performance, but in order to analyse in depth the financial statements, one need to focus on the company's notes to accounts and clarify his or her doubts.

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