Question

What are the five factors should the annual reporting timeline cover?

Which departments should be included when making a projection for a new budget?

Answer 1

Q1)

An annual report is a financial document that a public company prepares for its shareholders. These reports are can be used by potential investors and securities analysts to evaluate a company’s stock.

The report is usually the best source of information for most people to determine the financial health of a company.

An annual report gives a basic overview of the company over the past year. It usually includes: an opening letter from the CEO, a business profile, a management analysis, and financial data.

Amongst others , following are the some of the most important factors to be covered by the Annual Report

1. Product Overview and financial highlights in the last 5-10 years : Get details of products being manufactured by a company, segment wise performance in last two years, key raw materials consumed, etc. Some companies publish financial highlights of 5 to 10 years in annual reports.

2. Director's Report : This section provides brief summary on financials, explanation of the financial results, key developments in the company. Key things to look in here are operational parameters of the company such as capacity additions, capex plan / executed during the year, order book as on financial year end, average length of stay, occupancy rates, average revenue per occupied bed, average revenue per user, etc. Terms used to discuss operation of the company varies depending on sectors so get some knowledge about industry terms or use glossary to get better insights.

3. Management Discussion and Analysis (MDA : This section provides information on trends in the industry, SWOT analysis of the company, insights on key line items of financial statements and risk factors/concerns affecting the company performance. You will get relevant information to understand the industry while reading this section. It’s appreciated to read at least 3-5 years of MDA to understand trends of the company in different economy scenario.

4. Report on Corporate Governance : This section gives insight on corporate governance followed by a company, composition of board of directors, brief background information on directors and independent directors of the company, attendance of directors in board meetings and annual general meetings, remuneration of directors, re-appointment of directors after completing the term, composition of sub-committees, etc. Key things to look here is composition of board of directors, sub committees and attendance records of directors during meetings, relate remuneration paid to directors with profits earned by the company

5. Auditors Report : This section gives information on comments by auditors on the financials of the company. You look out who are the auditors for the company and any qualifications by the auditors on internal processes. The information on change in accounting policy if any will be highlighted in this section.

6. Financial Statements : This section provides detailed information on profit and loss accounts (income statement), balance sheet as on year end, cash flow statement and schedules of the financials for two years. Analyzing numbers from this section help us to check financial health of the company. We will explain in other article key things to look in financial statements for fundamental analysis of a company.

7. Notes to Accounts :In this section you will get information on accounting policy followed by a company, depreciation method, forex losses / gains, segmental reporting, inventories, liabilities, leases, etc. It will be helpful if you read notes to account section of last 3 to 5 years. This will help to get information on any change in accounting year or accounting policy which can inflate revenues or profits of the company, trend in segmental revenues / profitability, contingent liabilities over the years, related party transactions, etc.

Q2

Budgeting in corporate businesses is a team effort involving people from all organizational levels. Managers and individual contributors from every department do their part to provide information that company executives use to draft budget proposals. At the end of the day, members of the board of directors are ultimately responsible for approving or denying budget recommendations.

The following are few of the departments that assist in budget preparations:.

1. HR Department - Hiring budget for all departments

2. Marketing - Advertising, branding and promotion budget

3. Administration- Infrastructure (Electricity, rent,maintenance,furniture and fixture)

4. Accounts Department - Finance budget