Question

Conduct research or use an organisation that you know of, get a copy of an Annual Report.

Answer the following questions:

1. To whom is this report disseminated and how is this done?

2. Why do these people need the information contained in the Annual Report?

3. What financial information does the report offer? Describe the contents of the report and explain what it tells you about the business’ activities—successes and non-successes—during the year.

4. Examine the financial summaries for information about the fiscal condition of the company. Did the company show a profit?

5. What sorts of recommendations are made and what suggestions are made regarding business activities for the upcoming year?

Answer 1

Part 1) Answer :

To whom is this report disseminated and how is this done?

An annual report typically contains an overview of performance and prospects by the chief executive, financial data, results of a company’s operations, information on market conditions, new product plans, and research and development activities.

                   An annual report is an important element of a financial communication strategy to attract and retain investors. Regular communication updating investors on financial performance and company developments helps engage investors in the business and build more beneficial relationships, according to Forbes. Investors look for evidence of sound management when they review the financial data in the report. They can see whether sales are leveling off or the company has taken on too much debt. To protect their investment, they also want to know that a company is operating in a market that offers growth opportunities, according to Entrepreneur. The sections on market conditions, product plans, and research and development provide an indication of a company’s prospects

Below are the people to whom annual report is being sent.

1. Owners and investors: Stockholders of corporations need financial information to help them make decisions on what to do with their investments (shares of stock), i.e. hold, sell, or buy more. Prospective investors need information to assess the company's potential for success and profitability. In the same way, small business owners need financial information to determine if the business is profitable and whether to continue, improve or drop it.

2. Management: In small businesses, management may include the owners. In huge organizations, however, management is usually made up of hired professionals who are entrusted with the responsibility of operating the business or a part of the business. They act as agents of the owners.

The managers, whether owners or hired, regularly face economic decisions – How much supplies will we purchase? Do we have enough cash? How much did we make last year? Did we meet our targets? All those, and many other questions and business decisions, require analysis of accounting information.

3. Lenders: Lenders of funds such as banks and other financial institutions are interested in the company’s ability to pay liabilities upon maturity (solvency).

4. Trade creditors or suppliers: Like lenders, trade creditors or suppliers are interested in the company’s ability to pay obligations when they become due. They are nonetheless especially interested in the company's liquidity – its ability to pay short-term obligations.

5. Government: Governing bodies of the state, especially the tax authorities, are interested in an entity's financial information for taxation and regulatory purposes. Taxes are computed based on the results of operations and other tax bases. In general, the state would like to know how much the taxpayer makes to determine the tax due thereon.

6. Employees: Employees are interested in the company’s profitability and stability. They are after the ability of the company to pay salaries and provide employee benefits. They may also be interested in its financial position and performance to assess company expansion possibilities and career development opportunities.

7. Customers: When there is a long-term involvement or contract between the company and its customers, the customers become interested in the company’s ability to continue its existence and maintain stability of operations. This need is also heightened in cases where the customers depend upon the entity. For example, a distributor (reseller), the customer in this case, is dependent upon the manufacturing company from which it purchases the items it resells.

8. General Public: Anyone outside the company such as researchers, students, analysts and others are interested in the Annual Report of a company for some valid reason.

An annual Report Can be made available to these peope through various means some of which are given below:

1) Physical Copy Distribution.

2) Advertised through Print media like news papers and Financial Magzines.

3) Making the Copy Available on Degital media like Companies own website and other financial portals.

4) Copy on demand for external stack holders.

apart from that there are many other ways to dissiminate the annual report with in in and out side the organisatio but practicaly speaking the Companies web site is the most easy and efficient way of distributing the Annual Report to the stakeholders.

Part 2) Answer:

The annual report remains a powerful tool to communicate a company’s strengths and strategies to key stakeholders, even in today’s world of instant information. Much more than just a snapshot of a company’s performance for the past year, the annual report is an opportunity to highlight a company’s key achievements, expectations for the coming year and overall goals and objectives, all in a format that is easily accessible by a wide range of audiences. Through a combination of compelling visuals and eloquent text, the annual report can tell a company’s full story, from its products and growth prospects to the talents of its people and commitment to sustainability

The stakeholders need to carefully analyze an annual report to find out the following:

• They want to know how well the company is doing. Are earnings higher, lower, or the same as the year before? How are sales doing? These numbers should be presented clearly in the financial section of the annual report.

• They want to find out whether the company is making more money than it is spending. How does the balance sheet look? Are assets higher or lower than the year before? Is debt growing, shrinking, or about the same as the year before?

• They want to get an idea of management’s strategic plan for the coming year. How will management build on the company’s success? This plan is usually covered in the beginning of the annual report — frequently in the letter from the chairman of the board.

The stakeholders need to figuring out where the company has been, where it is now, and where it’s going. As an investor, you don’t need to read the annual report like a novel — from cover to cover. Instead, approach it like a newspaper and jump around to the relevant sections to get the answers you need to decide whether you should buy or hold on to the stock.

  Shareholders need financial statements to evaluate their equity investments and help them make informed decisions as to how to vote on corporate matters. When evaluating investments, shareholders are able to glean meaningful data found on financial statements. There are a number of tools shareholders can use to make equity evaluations, and it is important for them to analyze their stocks using a variety of measurements. Available evaluation metrics include profitability ratios, liquidity ratios, debt ratios, efficiency ratios and price ratios.

Part 3) Answer :

What financial information does the report offer?

The annual report is a comprehensive report provided by most public companies to disclose their corporate activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to evaluate the firm's financial performance. Typically, an annual report will contain the following sections:

• General Corporate Information
• Operating and Financial Highlights
• Letter to the Shareholders from the CEO
• Narrative Text, Graphics, and Photos
• Management's Discussion and Analysis (MD&A)
• Financial Statements, including the Balance Sheet, Income Statement, and Cash Flow Statement
• Notes to the Financial Statements
• Auditor's Report
• Summary of Financial Data
• Accounting Policies
• etc.

In the US, a more detailed version of the annual report is referred to as Form 10-K, and is submitted to the US Securities and Exchange Commissions (SEC). Companies may submit their annual reports electronically through the SEC's EDGAR database. Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors. Under the proxy rules, reporting companies are required to post their proxy materials, including their annual reports, on their company websites.

The following points highlight the major contents of an annual report in detail :

Chairman’s Speech:

Chairman’s speech highlights corporate activities, strategies, researches, labour relations, main achievements, focuses on future goals, growth. In corporate annual report, the chairman’s speech may not always be found but may be provided to shareholders as a separate document. Chairman’s speech may concentrate on economic condition of the industry to which the corporate unit belongs and the economy of the country.

Director’s Report:

in the report directors are to present their report with respect to the state of company’s affairs, the amount if any which they purposes to earn, to any reserve and dividend, materials changes and commitments if any, conservation of energy ; technology absorption and foreign exchange earnings. The board’s report is generally signed by the chairman if authorized, otherwise it is signed by the company’s manager or secretary if any, by not less than two directors of the company, one of whom shall be managing director.

Auditor’s Report:

An auditor is appointed by the shareholders of a company to audit accounts and as such, auditor addresses the report to the shareholders of the company on the accounts audited by him. It is the duty of the board of directors to attach the auditor’s report to the balance sheet so as to provide a copy of auditor’s report to every member of company.

Balance Sheet:

Balance sheet which is also known as position statement provides a bird’s eye view on company’s financial position as well as condition. This statement indicates whatever company has and whatever company owes. The excess of assets over liabilities is known as owners equity/shareholders funds.

Profit and Loss Account:

The profit and loss account which is also known as Income Statement indicates net profits earned by company during current financial year. Income statement also indicates profits available for distribution and appropriation after meeting tax liabilities. Profit and Loss Appropriation Account or Retained Earnings Account is also submitted with profit and loss account which indicates appropriations made during the period.

Schedules:

An average annual report generally contains some schedules forming part of balance sheet and others forming part of profit and loss account. These schedules are attached with financial statements for giving detailed information regarding items concerned.

Accounting Policies:

Accounting policies represent choices among different accounting methods that can be used while preparation of financial statements. Every reporting entity use to disclose various accounting policies followed while presenting various items of income statement as well as of balance sheet for instance method followed for charging depreciation on Fixed Assets.