How To Read The Annual Report Of A Company

I read annual reports of the company I’m looking at and I read the annual reports of the competitors – that is the main source of material.” ~ Warren Buffett . Annual Report of a company is a yearly publication which helps the potential investors and stakeholders to assess the performance of the company. Any analysis starts with monitoring the overall performance carried out by the organization. This report is published after completion of a financial year which has several financial terminologies attached to it. If you are not able to comprehend the mentioned terms, you will never understand what it means. So, to interpret the results and above said terms, one should need to revisit the annual report.

These reports are generally studied by the shareholders, investors, suppliers, government and also the future lenders. At the end of each accounting year, private limited companies are required to provide financial reports commonly called as statutory accounts.

DIRECTOR’S REPORT: Under Section 415 of the Companies Act 2006, the board of directors of a company is required to prepare a directors’ report at the end of each financial year. This helps in creating transparency among the public and corporate. This is first and foremost important content of any annual report and also a relative segment that is disclosed to the public for general information.

  • Whether the company’s finances are in good health;
  • Whether the company has the capacity to expand and grow in the current scenario.
  • How well the company is performing within its market and the way market is responding to it.
  • How well the company is complying with financial regulations and corporate social responsibility requirements.

Read Also- How To Read The Financial Statement Of Any Company

VISION AND MISSION STATEMENT OF A COMPANY: “Even in writing an annual report, the unconscious plays a role.” ~ Mason Cooley.

Vision and mission defines the purpose of the business which states the philosophy of existence. It also lays down the structure and the objectives which will be carried throughout the existence of business. For that matter, they are also called as statements of creed. Without a proper vision and mission, strategies and decisions can’t be implemented on a long term basis. A mission statement differentiates itself from its competitors by incorporating key questions such as who are we, what we do and for whom we are doing it which is explained in the annual report of the company.

INCOME STATEMENT AND BALANCE SHEET:

It reveals the current profitability and the share prices of the business in a particular financial year. Investors can easily compare Income statement of past financial years to arrive at investing decision. For a better and long term investment plan a company must be consistent in making profits, then only an investor finds it a good investment choice. Balance sheet is the overall summary of the financial statement of the company. It compares the asset and liability of the company to decide whether the company is in good position or not.

SALES AND MARKETING:

This section explains the sales of goods and services that have been done by the company in the previous year. This makes quite clear that which product or service holds a top ranking or valuability in its portfolio. By summarizing the marketing activities, company can make its strategies for future prospects regarding the product.

MANAGEMENT DISCUSSION AND ANALYSIS:

This is the area where a company’s management has the opportunity to present a discussion of significant financial trends and analyzing the same within the company over the past couple years so as to find out the loopholes which can be identified easily. Additional supplementary/ complimentary information provided in this section will help readers understand what exactly the financial statements want to depict and what is not reflected in it. It also incorporates macroeconomic tools and techniques to assess your performance in annual report of a company.

INFORMATION ON SHARES OF A COMPANY:

This section gives a brief history about the shareholding pattern of the company and also the stock pricing in the form of listing in different stock market such as NSE, BSE or NASDAQ. The dividends paid by the company at the end of every financial year give a clear picture about the profitability of the company.

In a nutshell, annual reports of a company are a storehouse of existing information that needs a detailed analysis to understand the minute details about the organization. As an investor, you must need to analyze each and every finer aspect for a successful investment and thorough knowledge.

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