Question

A number of investigations have been undertaken into the use of made by stake holders of the annual reports of companies in which they invested .several of these show that the annual report is regarded as an important source of information for making decisions on equity investment . Other studies indicate that the market price of the share in a company does not react in the short term to the publication of the company s annual report .How would you reconcile these findings with each other, and with the efficient markets hypothesis

Answer 1

Annual report of a organization is an important source of information for any investor. Following information are generally present in a annual report:

• General corporate info
• Operating and financial review and comments
• Director's Report
• Corporate governance information
• Chairpersons statement
• Auditor's report
• Contents: non-audited information
• Financial statements
  • Balance sheet
  • Profit and loss statement.
  • Statement of changes in equity
  • Cash flow statement
• Notes to the financial statements
• Accounting policies
• Other features

Considering the above information, annual report can give good information on financials as well as overall health of the company. Data like corporate governance info, auditor's report and accounting policies can provide lots of qualitative info, which cannot be understood by only referring to financials. Hence, annual report is very important documents both from quantitative and qualitative data point-of-view.

On the other hand, one can always comment that annual report disclosure does not have huge impact on its stock market performance. By the time, annual report is published, most of the investor already have an rough idea how would be the performance of the company in that quarter. They have many sources to know about this:

- Performance projection published by the company before official disclosure of the result

- Shareholder call, generally convened by the CEO/ chairman of the company

- Overall micro and macro-economic situation

- Performance of the company on immediate previous quarters

- Previous annual report

Overall, annual report may or may not have huge impact on the stock performance. Nevertheless, it is always very useful source of information about the company.