Question

What is the main financial information required when providing information to shareholders? Discuss in 50 to 80 words.

Answer 1

Shareholders are the owners of companies. Shareholders play an important role in the financing, operations, governance and control aspects of a business. They are considered as backbone of any company on whom company base is structured. So they are to be provided with information on working of the company especially financial information. The attributes like Consistent, Straightforward, Succinct, Clear are considered hallmarks of good practice in the preparation of annual reviews to shareholders.

Financial Information includes ;

1. Statistical Summary

2. Performance Highlights

3. Profitibility Ratios

4. Liquidity Ratios

5. Chairman & Cheif Executive Statements

6. Business Review etc.,

Let us see each item in little detail

1. Statistical Summary :

The objective of providing a statistical summary is to give shareholders information on how the company has performed, and on its financial position over an extended period of time, to facilitate their assessments of performance and to enhance comparability. Most companies present a five year statistical summary of key financial and non-financial measures in tabular format, although some present more than five years of such data. At a minimum, good practice would require the inclusion of a summarised income statement and balance sheet, as well as cash flow data extracted directly from the audited financial statements and the relevant KPIs emphasised by management.

These are considered as crucial analytic tools for investors when reviewing a company. The Balance sheet summarizes the financial position of a company for one specific point in time. The P&L statement shows revenues and expenses during a set period of time. The length of the period of time covered in the P&L statement may vary, but common intervals include quarterly (three months) and annual statements. A cash flow statement, also known as statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. When used together along with other financial documents, these statements can be used to assess the operational efficiency, year-to-year consistency, and organizational direction of a company

2. Performance Highlights :

The objective of the performance highlights section is to put forward the key financial and statistical information as well as the important market and operational events that best summarise the company’s performance during the period, and compare these results with the prior period and the company’s goals. The performance highlights section should focus on the measures of most relevance to the company’s objectives and strategies at the current point in its life cycle. Therefore, these should be the key performance indicators (KPIs) used by management to evaluate the company’s progress towards achieving its objectives and strategies.

3. Profitibility Ratios :

Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time.Some examples of profitability ratios are profit margin, return on assets (ROA) and return on equity (ROE). Profitability ratios are the most popular metrics used in financial analysis

4. Liquidity Ratios :

Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio and operating cash flow ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term debts in an emergency. Bankruptcy analysts and mortgage originators use liquidity ratios to evaluate going concern issues, as liquidity measurement ratios indicate cash flow positioning

5. Chairman & Cheif Executive Statements :

The main objective of these statements is to clearly enunciate the key messages related to the company’s strategies, risks, markets, growth, corporate responsibility and outlook as seen through the eyes of the board and senior executives. In doing so, consider including the following:

a. An overview of the company’s financial and dividend performance, which adds context to the statistics presented as ‘performance highlights’

b. Significant developments during the year such as acquisitions, major investment projects, and board and senior executive changes

c. The main contributors and challenges to the profits the business achieves and its future growth

6. Business Review :

The main objective of the business review is to give the shareholders a clear picture of the company’s performance and positioning. Business review contains items like Company overview and strategy, Review of operations, Investments for future performance, Review of financial condition, Risk management