Question

In your opinion, from the perspective of the investors and securities market, discuss how the investors or securities markets will react to the disclosures of certain information provided in the annual report of an organisation

Answer 1

Annual report is a circulation which provides information regarding companies operations and financial position of that period. Investors view the annual reports as a source for companies’ performance and analysis of companies’ results.

The annual report can show investors which areas of the company are performing well and which areas are stagnant or in decline, and whether current debt levels are sustainable or will need to be increased.

Investors typically look at the financial information contained in an annual report. The income statement contains details of sales and profit margins achieved on those sales The balance sheet contains a detailed statement of the company's current assets, including cash, property, patents and stock, plus debts that the company must pay off.

The following are the key areas where investors or security markets are keen to observe:

1. EPS: Earning Per Share is critical decision point for majority of investors. EPS increase or decrease will significantly affect investor’s opinion. EPS is normally the funds available for investors but due to buyback or splitting of shares will affect the investor opinion.

2. Ratios: Ratios such as capital gearing ratio, return on assets, Debt/equity, return on equity etc. will give basis for analysis of companies’ performance. Hence investors are keen to know the ratios.

3. President Message: Any critical decisions and major happenings in the year and other key information is included in president message.

4. Risk factors: These are the factors that may adversely affect the company’s business. Much of this section contains less-obvious risks, such as a disproportionate share of sales coming from a single product or customer.

5. Management’s Discussion and Analysis: The company reports and analysis its performance over the past year compared with the previous year’s results. Management vision for the upcoming period.

6. Auditor’s report: Investor needs to see whether the financials are being maintained as per Going Concern Basis. And also audit opinions will also plays a key role in influencing investor’s decisions.

7. Notes to financial statements: Detailed version of financial information is available in Notes hence investors are keen to know the utilisation of funds and management decisions. If a company has made a change to its methodology from the previous year, any results from prior years which may give investor an averse or favourable opinion.