A comprehensive report detailing a company’s activities throughout the preceding year
Written byCFI Team
Over 2 million + professionals use CFI to learn accounting, financial analysis, modeling and more. Unlock the essentials of corporate finance with our free resources and get an exclusive sneak peek at the first module of each course. Start Free
What is an Annual Report?
An annual report is a comprehensive report detailing a company’s activities throughout the preceding year. Its purpose is to provide users, such as shareholders or potential investors, with information about the company’s operations and financial performance.
Summary
- Annual reports are comprehensive documents designed to provide readers with information about a company’s performance in the preceding year.
- The reports contain information, such as performance highlights, a letter from the CEO, financial information, and objectives and goals for future years.
- There are many users of annual reports, including shareholders and potential investors, employees, and customers.
What Does an Annual Report Contain?
Annual reports provide a significant amount of information for its readers who will be able to get a good overview of the company’s overall performance in the preceding year. It is important to note that many annual reports are not traditional reports with large amounts of text; many companies often incorporate a lot of graphics and images, resulting in a visually appealing document.
The structure of annual reports undoubtedly will vary according to each company, but most annual reports will generally contain the following:
- A letter from the president or CEO
- Performance highlights from the preceding year
- Financial statements
- Performance and outlook for future years
We will briefly go through each item in detail below:
1. Letter from the CEO
The letter from the CEO is addressed to shareholders and provides a summary of the company’s performance in the previous year. CEOs typically spend a lot of time on their letters to highlight the company’s achievements, as its performance is relative to the industry it operates in. The letter would likely mention the information of interest to shareholders since they are the primary readers of the report.
2. Performance Highlights
Annual reports usually dedicate a section to highlighting some of the company’s key achievements, such as special initiatives, goals reached, or awards received by the company or its employees. The main goal of the section is to ensure that shareholders are satisfied with their investment in the company and persuade potential investors to do the same.
3. Financial Statements
Financial statements are a key component of the annual report and provide its users with quantitative data regarding specific aspects of its financial performance in the previous fiscal year.
Annual reports typically include financial statements, such as balance sheets, income statements, and cash flow statements. In addition, there will often be graphs or charts included, helping break down the financials into easily readable information.
4. Outlook for Future Years
Annual reports typically include information regarding its future performance in order to provide shareholders with information on the company’s future goals and objectives. Investors are able to get a thorough understanding of the company’s current position in its respective industry and the company’s plans for future growth. The reports also include information regarding a company’s strategy and how it plans to implement that strategy in the coming years.
5. Format
While hardcopy annual reports are still common, electronic versions are increasingly popular and can be found on the websites of many companies. Electronic versions allow the reports to be made accessible to a larger audience in PDF or other formats.
Increasingly common are interactive online reports, which allow users to virtually flip through the report and expand graphics, among other things.
Who Uses Annual Reports?
Annual reports are often publicly available and cater to a large external audience, including shareholders, potential investors, employees, and customers. The general community can also be an audience, as some companies or non-profit organizations will likely go through another company’s annual report to better understand the latter’s values to see if a partnership or other collaborative efforts are feasible.
While they are primarily used to convey financial and performance-related information, the annual report is also used as an advertising tool to highlight some of the company’s key initiatives or goals that were recently achieved.
1. Shareholders and Potential Investors
Shareholders and potential investors use annual reports to get a better understanding of the current position of the company in order to make investing decisions. The annual report helps potential investors decide whether or not to purchase stock. It also gives insight into the future plans of the company, along with its goals and objectives.
2. Employees
Employees often use the annual report to understand some of a company’s different focus areas. Many employees are also shareholders of a company due, in part, to stock option benefits and other schemes, which provide employees with incentives in being shareholders.
3. Customers
Customers of a company use annual reports to get an overview of different companies and help them decide on which one to build a relationship with. Customers are interested in working with high-quality suppliers of products or services, and an annual report enables companies to emphasize its core values and objectives.
They also make good use of the financial information contained in the annual report, which gives them a good idea of the financial position of the company.
Related Readings
Thank you for reading CFI’s guide to Annual Report. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
