Things To Watch Out For In An Annual Report
Annual reports contain many sections that contain useful information about the company. When reading annual reports, it is important to note that there is a very fine line between the facts presented by the company and the marketing content that the company wants you to read.
Here's a quick overview of the different sections of the annual report to understand what companies are trying to convey in their ARs.
In general, Annual Report consists of the following nine sections:
- Financial highlights
- Management statement
- Management discussion and analysis
- Ten-year financial highlights
- Corporate information
- Board of Directors report
- Corporate governance report
- Financial section; and
- Notices.
It should be noted that no two annual reports are the same, and they are tailored to the requirements of the industry in which the company operates. However, certain sections of the annual report are common to all annual reports.
The Financial Highlights section contains information that provides a bird's-eye view of the financial situation for the year. The information in this section can be presented in the form of tables or graphical representations of data. This section of the annual report usually contains multi-year comparisons of operating and business indicators.
Essentially, the information offered in the Financial Highlights section is taken directly from the financial accounts of the organization. You can find certain financial ratios that the company itself calculated along with the statements. The following chapters will assist you in learning how to interpret financial accounts of a company and how to compute financial ratios.
The "Management Statement" and "Management Discussion & Analysis" parts that follow are quite significant. Both of these parts give you an idea of what the company's management thinks about its operations and the sector as a whole. Each and every word mentioned in these parts is significant if you are or plan to be an investor in the organization.
Investors gain insight into how the person at the top is viewing his company through the "Management Statement" (also known as the Chairman's Message). Typically, this content is all-encompassing and shows if the management is open about revealing specifics on the business's successes and failures.
As seen in the Annual Report 2021-21 of BEXIMCO SYNTHETICS LTD, the Chairman has been really forthright and transparent regarding the business's winding down as highlighted above.
Next comes The "Management Discussion & Analysis," or "MD&A" part. This is in fact another significant section in the entire AR. The most common way for any corporation to begin this part is by discussing the broad economic trends. They talk about the nation's overall economic activities as well as the mood in the corporate world regarding business. If the business is heavily dependent on exports, they may even discuss the state of the world economy and business climate.
Following this, the businesses often discuss market trends and their projections for the coming year. This is a crucial section since it explains how the company views the dangers and possibilities facing the sector. Most importantly, I studied this and compared it to its competitors to determine whether the company has any advantages over them. Next, the company discusses the performance of the company throughout its various divisions, how it fared in contrast to the prior year, etc. In fact, the business provides detailed figures in this section.
Some businesses even talk about their goals and plans for the coming year across the many industries they work in.
