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'''Annual report''' is a comprehensive report of company`s activity during the prior year. Its purpose is to provide users with information on the company's activities and financial performance, such as shareholders and potential investors.<ref>Corporate Finance Institute, 2022</ref>
'''Annual report''' is a comprehensive report of [[company]]`s activity during the prior year. Its purpose is to provide users (such as shareholders and potential investors) with [[information]] on the company's activities and [[financial performance]]<ref>Corporate Finance Institute, 2022</ref>.


=Annual reports - the most popular medium=
=Annual reports - the most popular medium for companies performance=
Annual reports are the most popular medium via which companies share their previous performance, understanding of the external environment, goals, plans for the near and immediate future, and performance expectations. '''Because annual reports are vehicles for communication with numerous stakeholders (investors, employees, customers, etc.)''', adequate information results in clarity and information asymmetry.  
Annual reports are the most popular medium via which companies share their previous performance, understanding of the external [[environment]], goals, plans for the near and immediate future, and performance expectations. '''Because annual reports are vehicles for [[communication]] with numerous [[stakeholders]] (investors, employees, customers, etc.)''', adequate information results in clarity and information asymmetry.  
It is also essential that '''corporate communication is open, straightforward, and simple for all stakeholders to comprehend'''. In the absence of high-quality, timely, and sufficient information regarding corporate performance and strategies, investor risk rises, which may result in increased capital costs.<ref>Srinivasan et al., 2015</ref>
It is also essential that '''corporate communication is open, straightforward, and simple for all stakeholders to comprehend'''. In the [[absence]] of high-[[quality]], timely, and sufficient information regarding corporate performance and strategies, investor [[risk]] rises, which may result in increased capital costs<ref>Srinivasan et al., 2015</ref>.


=Elements of an annual report=
==Elements of an annual report==
'''Annual reports provide a significant quantity of information to their readers, who will gain a comprehensive understanding of the company's success throughout the past year.''' It is crucial to note that many annual reports are not standard reports with a broad range of text; many businesses frequently include a large portion of graphics and photos, resulting in an aesthetically attractive document.<ref>Corporate Finance Institute, 2022</ref>
'''Annual reports provide a significant quantity of information to their readers, who will gain a comprehensive understanding of the company's success throughout the past year.''' It is crucial to note that many annual reports are not [[standard]] reports with a broad range of text; many businesses frequently include a large portion of graphics and photos, resulting in an aesthetically attractive document<ref>Corporate Finance Institute, 2022</ref>.


The layout of annual reports varies from firm to corporation, but they often include the following sections:<ref>Corporate Finance Institute, 2022</ref><ref>Palepu & Healy, 2012, p.12-13</ref>
The layout of annual reports varies from [[firm]] to corporation, but they often include the following sections<ref>Corporate Finance Institute, 2022</ref><ref>Palepu & Healy, 2012, p.12-13</ref>:
* A letter from the president or CEO
* A letter from the CEO
* Performance highlights from the preceding year
* Performance highlights from the preceding year
* Financial statements
* Financial statements
* Management assessment report and assurance opinion  
* [[Management]] assessment report and assurance opinion  
* Performance and outlook for future years
* Performance and outlook for future years
* Voluntary disclosures (optional)
* Voluntary disclosures (optional)
Each section is described in more detail further in the article.
* '''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<ref>Corporate Finance Institute, 2022</ref>.
Some firms apply the letter to the Shareholders section of their annual report to outline the firm's industry conditions, competitive standing, and future ambitions. Others use the letter to exaggerate the firm's financial performance and skim over any potential competitive challenges<ref>Palepu & Healy, 2012, p.3-11</ref>.
'''The letter would likely mention the information of [[interest]] to shareholders since they are the primary readers of the report'''<ref>Corporate Finance Institute, 2022</ref>.
* '''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<ref>Corporate Finance Institute, 2022</ref>.
* '''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<ref>Corporate Finance Institute, 2022</ref>.


'''1.Letter from the CEO'''
Companies in financial highlights often include small fonts for footnotes indicating that certain charges have been excluded from the figures presented<ref>Wahlen et al., 2014, p.253</ref>.
Additionally, there are numerous variations in the format of income statements in corporate annual reports. Typically, businesses list numerous sources of revenue from the sale of their goods and services, followed by the [[cost]] of goods sold<ref>Wahlen et al., 2014, p.30</ref>.
The [[classification of assets]] in the balance sheet varies widely in published annual reports <ref>Wahlen et al., 2014, p.23</ref>.
* '''Management assessment report and assurance opinion '''
Each annual report must include an "internal control report" specifying management's responsibility for building and maintaining an adequate internal control structure and procedures (Management assessment report).  
The annual report must also include the auditor's [[evaluation]] of the effectiveness of the internal control structure and processes (Assurance opinion). The assurance opinion can be unqualified, qualified, adverse, or a disclaimer. This report must be signed by the [[chief executive officer]] and the chief financial officer<ref>Wahlen et al., 2014, p.40</ref>.


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.<ref>Corporate Finance Institute, 2022</ref>
A firm’s annual reports are audited by the external auditors<ref>Palepu & Healy, 2012, p.3-13</ref>.
Some firms apply the letter to the Shareholders section of their annual report to outline the firm's industry conditions, competitive standing, and future ambitions. Others use the letter to exaggerate the firm's financial performance and skim over any potential competitive challenges.<ref>Palepu & Healy, 2012, p.3-11</ref>
* '''Outlook for Future Years'''
'''The letter would likely mention the information of interest to shareholders since they are the primary readers of the report.'''<ref>Corporate Finance Institute, 2022</ref>
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<ref>Corporate Finance Institute, 2022</ref>.
* '''Voluntary disclosures (optional)'''
Voluntary disclosures may be presented in the company's annual report, in brochures prepared to describe the company to investors, in management meetings with analysts, or in investor relations' responses to requests for information<ref>Palepu & Healy, 2012, p.12-13</ref>.


'''2.Performance highlights'''
==Format of an annual report==
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<ref>Corporate Finance Institute, 2022</ref>.
A large number of companies include all or a portion of their annual reports on their corporate websites<ref>Wahlen et al., 2014, p.57</ref>.


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.<ref>Corporate Finance Institute, 2022</ref>
==Users of an annual report==
Annual reports are typically available to the general public and address a broad external audience, including shareholders, potential investors, employees, and customers. The general public can also be an audience, as certain businesses and non-[[profit]] organizations will likely read an [[organization]]'s annual report to determine whether a partnership or other collaborative initiatives are possible<ref>Corporate Finance Institute, 2022</ref>.


'''3.Financial statements'''
While annual reports are primarily used to transmit financial and performance-related information, they are also used as a promotional tool to showcase some of the company's recently accomplished significant initiatives or goals<ref>Corporate Finance Institute, 2022</ref>.
* '''Shareholders and Potential Investors'''
In order to make investment decisions, shareholders and potential investors utilize annual reports to better understand the company's present condition. The annual report assists potential investors in determining whether to purchase stock. It also provides insight into the company's future strategies, as well as its aims and objectives<ref>Corporate Finance Institute, 2022</ref>.
* '''Employees'''  
Employees frequently utilize the annual report to understand the company's many areas of concentration. Due in part to stock [[option]] rewards and other schemes that incentivize employees to become shareholders, many employees are also shareholders of a company<ref>Corporate Finance Institute, 2022</ref>.
* '''Customers'''
Annual reports are utilized by a company's customers to gain an overview of competing businesses and determine with whom to establish a relationship. Customers are interested in collaborating with high-quality products or [[service]] providers, and an annual report enables businesses to stress their central beliefs and goals<ref>Corporate Finance Institute, 2022</ref>. They also effectively use the financial information in the annual report, which provides them with a solid understanding of the company's financial standing<ref>Corporate Finance Institute, 2022</ref>.


'''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.<ref>Corporate Finance Institute, 2022</ref>
==Footnotes==
'''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.<ref>Corporate Finance Institute, 2022</ref>
<references />


Companies in financial highlights often include small fonts for footnotes indicating that certain charges have been excluded from the figures presented.<ref>Wahlen et al., 2014, p.253</ref>
{{infobox5|list1={{i5link|a=[[Interim Statement]]}} &mdash; {{i5link|a=[[External audit]]}} &mdash; {{i5link|a=[[Growth shares]]}} &mdash; {{i5link|a=[[Strategic analysis methods]]}} &mdash; {{i5link|a=[[BCG growth-share matrix]]}} &mdash; {{i5link|a=[[Investment proposal]]}} &mdash; {{i5link|a=[[Reporting entity]]}} &mdash; {{i5link|a=[[Quality policy]]}} &mdash; {{i5link|a=[[Alfred Sloan]]}} }}
Additionally, there are numerous variations in the format of income statements in corporate annual reports. Typically, businesses list numerous sources of revenue from the sale of their goods and services, followed by the cost of goods sold.<ref>Wahlen et al., 2014, p.30</ref>
The classification of assets in the balance sheet varies widely in published annual reports.<ref>Wahlen et al., 2014, p.23</ref>
 
'''4.Management assesment report and assurance opinion '''
 
Each annual report must include a "internal control report" specifying management's responsibility for building and maintaining an adequate internal control structure and procedures (Management assessment report).
The annual report must also include the auditor's evaluation of the effectiveness of the internal control structure and processes (Assurance opinion). The assurance opinion can be unqualified, qualified, adverse, or a disclaimer. This report must be signed by the chief executive officer and the chief financial officer.<ref>Wahlen et al., 2014, p.40</ref>
 
'''5.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.<ref>Corporate Finance Institute, 2022</ref>
 
'''6.Voluntary disclosures'''
 
Voluntary disclosures may be presented in the company's annual report, in brochures prepared to describe the company to investors, in management meetings with analysts, or in investor relations' responses to requests for information.<ref>Palepu & Healy, 2012, p.12-13</ref>
 
=Format of an annual report=
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.<ref>Corporate Finance Institute, 2022</ref>
A large number of companies include all or a portion of their annual reports on their corporate websites.<ref>Wahlen et al., 2014, p.57</ref>
 
=Users of an annual report=
 
Annual reports are typically available to the general public and address a broad external audience, including shareholders, potential investors, employees, and customers. The general public can also be an audience, as certain businesses and non-profit organizations will likely read an organization's annual report to determine whether a partnership or other collaborative initiatives are possible. (Corporate Finance Institute, 2022)
 
While annual reports are primarily used to transmit financial and performance-related information, they are also used as a promotional tool to showcase some of the company's recently accomplished significant initiatives or goals. (Corporate Finance Institute, 2022)
 
1. Shareholders and Potential Investors
In order to make investment decisions, shareholders and potential investors utilize annual reports to better understand the company's present condition. The annual report assists potential investors in determining whether to purchase stock. It also provides insight into the company's future strategies, as well as its aims and objectives. (Corporate Finance Institute, 2022)
 
2. Employees
Employees frequently utilize the annual report to understand the company's many areas of concentration. Due in part to stock option rewards and other schemes that incentivize employees to become shareholders, many employees are also shareholders of a company.
(Corporate Finance Institute, 2022)
3. Customers
Annual reports are utilized by a company's customers to gain an overview of competing businesses and determine with whom to establish a relationship. Customers are interested in collaborating with high-quality products or service providers, and an annual report enables businesses to stress their central beliefs and goals. (Corporate Finance Institute, 2022)
 
They also effectively use the financial information in the annual report, which provides them with a solid understanding of the company's financial standing.
(Corporate Finance Institute, 2022)
 
A firm’s annual reports are audited by the external auditors.<ref>Palepu & Healy, 2012, p.3-13</ref>
 
==Footnotes==  
<references />


=References=
==References=
* [https://corporatefinanceinstitute.com/resources/accounting/annual-report/ Corporate Finance Institute.] (2022, November 1). Annual Report.
* [https://corporatefinanceinstitute.com/resources/accounting/annual-report/ ''Corporate Finance Institute.''] (2022, November 1). Annual Report.
* Palepu, K. G., & Healy, P. M. (2012). [https://www.pdfdrive.com/business-analysis-and-valuation-using-financial-statements-text-and-cases-with-thomson-analytics-printed-access-card-d176323274.html Business Analysis and Valuation : Using Financial Statements] (5th ed.). South-Western.
* Palepu, K. G., & Healy, P. M. (2012). [https://www.pdfdrive.com/business-analysis-and-valuation-using-financial-statements-text-and-cases-with-thomson-analytics-printed-access-card-d176323274.html ''Business Analysis and Valuation : Using Financial Statements''] (5th ed.). South-Western.
* Srinivasan, P., Srinivasan, R., & Marques, A. C. (2015). [https://doi.org/10.2139/ssrn.2611890 Narrative Analysis of Annual Reports - A Study of Communication Efficiency.] SSRN Electronic Journal.
* Srinivasan, P., Srinivasan, R., & Marques, A. C. (2015). [https://doi.org/10.2139/ssrn.2611890 ''Narrative Analysis of Annual Reports - A Study of Communication Efficiency.''] "SSRN Electronic Journal."
* Wahlen, J. M., Baginski, S. P., & Bradshaw, M. T. (2014). [https://www.pdfdrive.com/financial-reporting-financial-statement-analysis-and-valuation-d176082306.htm Financial Reporting, Financial Statement Analysis and Valuation (8th ed.).] Cengage Learning.
* Wahlen, J. M., Baginski, S. P., & Bradshaw, M. T. (2014). [https://www.pdfdrive.com/financial-reporting-financial-statement-analysis-and-valuation-d176082306.htm ''Financial Reporting, Financial Statement Analysis and Valuation''] (8th ed.). Cengage Learning.
[[Category:Financial management]]


{{a|Annija Petersone}}.
{{a|Annija Petersone}}.

Latest revision as of 16:43, 17 November 2023

Annual report is a comprehensive report of company`s activity during the prior year. Its purpose is to provide users (such as shareholders and potential investors) with information on the company's activities and financial performance[1].

Annual reports - the most popular medium for companies performance

Annual reports are the most popular medium via which companies share their previous performance, understanding of the external environment, goals, plans for the near and immediate future, and performance expectations. Because annual reports are vehicles for communication with numerous stakeholders (investors, employees, customers, etc.), adequate information results in clarity and information asymmetry. It is also essential that corporate communication is open, straightforward, and simple for all stakeholders to comprehend. In the absence of high-quality, timely, and sufficient information regarding corporate performance and strategies, investor risk rises, which may result in increased capital costs[2].

Elements of an annual report

Annual reports provide a significant quantity of information to their readers, who will gain a comprehensive understanding of the company's success throughout the past year. It is crucial to note that many annual reports are not standard reports with a broad range of text; many businesses frequently include a large portion of graphics and photos, resulting in an aesthetically attractive document[3].

The layout of annual reports varies from firm to corporation, but they often include the following sections[4][5]:

  • A letter from the CEO
  • Performance highlights from the preceding year
  • Financial statements
  • Management assessment report and assurance opinion
  • Performance and outlook for future years
  • Voluntary disclosures (optional)

Each section is described in more detail further in the article.

  • 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[6]. Some firms apply the letter to the Shareholders section of their annual report to outline the firm's industry conditions, competitive standing, and future ambitions. Others use the letter to exaggerate the firm's financial performance and skim over any potential competitive challenges[7]. The letter would likely mention the information of interest to shareholders since they are the primary readers of the report[8].

  • 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[9].

  • 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[10].

Companies in financial highlights often include small fonts for footnotes indicating that certain charges have been excluded from the figures presented[11]. Additionally, there are numerous variations in the format of income statements in corporate annual reports. Typically, businesses list numerous sources of revenue from the sale of their goods and services, followed by the cost of goods sold[12]. The classification of assets in the balance sheet varies widely in published annual reports [13].

  • Management assessment report and assurance opinion

Each annual report must include an "internal control report" specifying management's responsibility for building and maintaining an adequate internal control structure and procedures (Management assessment report). The annual report must also include the auditor's evaluation of the effectiveness of the internal control structure and processes (Assurance opinion). The assurance opinion can be unqualified, qualified, adverse, or a disclaimer. This report must be signed by the chief executive officer and the chief financial officer[14].

A firm’s annual reports are audited by the external auditors[15].

  • 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[16].

  • Voluntary disclosures (optional)

Voluntary disclosures may be presented in the company's annual report, in brochures prepared to describe the company to investors, in management meetings with analysts, or in investor relations' responses to requests for information[17].

Format of an annual report

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[18]. A large number of companies include all or a portion of their annual reports on their corporate websites[19].

Users of an annual report

Annual reports are typically available to the general public and address a broad external audience, including shareholders, potential investors, employees, and customers. The general public can also be an audience, as certain businesses and non-profit organizations will likely read an organization's annual report to determine whether a partnership or other collaborative initiatives are possible[20].

While annual reports are primarily used to transmit financial and performance-related information, they are also used as a promotional tool to showcase some of the company's recently accomplished significant initiatives or goals[21].

  • Shareholders and Potential Investors

In order to make investment decisions, shareholders and potential investors utilize annual reports to better understand the company's present condition. The annual report assists potential investors in determining whether to purchase stock. It also provides insight into the company's future strategies, as well as its aims and objectives[22].

  • Employees

Employees frequently utilize the annual report to understand the company's many areas of concentration. Due in part to stock option rewards and other schemes that incentivize employees to become shareholders, many employees are also shareholders of a company[23].

  • Customers

Annual reports are utilized by a company's customers to gain an overview of competing businesses and determine with whom to establish a relationship. Customers are interested in collaborating with high-quality products or service providers, and an annual report enables businesses to stress their central beliefs and goals[24]. They also effectively use the financial information in the annual report, which provides them with a solid understanding of the company's financial standing[25].

Footnotes

  1. ↑ Corporate Finance Institute, 2022
  2. ↑ Srinivasan et al., 2015
  3. ↑ Corporate Finance Institute, 2022
  4. ↑ Corporate Finance Institute, 2022
  5. ↑ Palepu & Healy, 2012, p.12-13
  6. ↑ Corporate Finance Institute, 2022
  7. ↑ Palepu & Healy, 2012, p.3-11
  8. ↑ Corporate Finance Institute, 2022
  9. ↑ Corporate Finance Institute, 2022
  10. ↑ Corporate Finance Institute, 2022
  11. ↑ Wahlen et al., 2014, p.253
  12. ↑ Wahlen et al., 2014, p.30
  13. ↑ Wahlen et al., 2014, p.23
  14. ↑ Wahlen et al., 2014, p.40
  15. ↑ Palepu & Healy, 2012, p.3-13
  16. ↑ Corporate Finance Institute, 2022
  17. ↑ Palepu & Healy, 2012, p.12-13
  18. ↑ Corporate Finance Institute, 2022
  19. ↑ Wahlen et al., 2014, p.57
  20. ↑ Corporate Finance Institute, 2022
  21. ↑ Corporate Finance Institute, 2022
  22. ↑ Corporate Finance Institute, 2022
  23. ↑ Corporate Finance Institute, 2022
  24. ↑ Corporate Finance Institute, 2022
  25. ↑ Corporate Finance Institute, 2022


Annual report — recommended articles
Interim Statement — External audit — Growth shares — Strategic analysis methods — BCG growth-share matrix — Investment proposal — Reporting entity — Quality policy — Alfred Sloan

=References

Author: Annija Petersone

.

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