Uses of an Annual Report

By Peter Lancett
eHow Contributor

business report image by Christopher

Hall from Fotolia.com
Companies with shares traded on a stock exchange are called public
companies, because anyone can buy and sell shares in them. In the
United States, public companies must send annual reports to all
shareholders, according to Securities and Exchange Commission (SEC)
rules. These rules state that an annual report must contain certain
information such as management discussion and analysis of the
company's results; changes in those results during the past two years;
and financial information, including a balance sheet, income statement
and cash flow statement. People interested in the financial standing and
future outlook for a company can find useful information in an annual
report.

Investors

Investors typically look at the financial information contained in an

annual report. The income statement contains details of sales and profit
margins achieved on those sales The balance sheet contains a detailed
statement of the company's current assets, including cash, property,
patents and stock, plus debts that the company must pay off. The annual
report can show investors which areas of the company are performing well
and which areas are stagnant or in decline, and whether current debt
levels are sustainable or will need to be increased.

Employees

Whether or not employees are shareholders in their company, if the

company is a public entity, the annual report is a key source of
information for them. Employees based in one location get an overview of
what is happening in other locations and divisions of the company. They
can also use financial information, like investors do, to understand the
company's financial health. The annual report may also contain
information on successfully concluded projects that employees in different
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parts of the company were involved with, giving those workers an

understanding of where they fit into the larger corporate picture.

Customers and Suppliers

Customers and suppliers can gauge the health of a company they

are doing business with, or are considering doing business with, from
information contained in an annual report. Customers may want to do
business with companies that can demonstrate the capacity to complete
projects. Information about successful project completions, along with the
the company's current financial standing, lets customers know that the
company has the capacity and experience to fulfill their orders. Suppliers
use financial information, and statements about contracts and potential
sales to determine the terms of credit that they will extend to the
company. A company considering working with a supplier can use the
supplier's annual report to see if the supplier has a record of delivering
quality results, on time.

Community

Wherever a company considers doing business, the local community

can use the company's annual report to discover the nature of the
company. The environmental credentials of the company may be
important to a community where the company wants to build and operate
plants. The degree to which a company successfully integrates with, and
contributes to, the communities that it operates in may influence those
that must grant resource consent permissions to allow company's to set
up their operations. Communities may look more favorably on companies
that demonstrate a community and environmental commitment by
highlighting achievements in these areas in their annual reports.

References

Association For Investment Management and Research: Educated

Investor
Reference For Business: Annual Reports
Accounting Financial And Tax: How To Read And Analyze An Annual
Report
Photo Credit business report image by Christopher Hall from Fotolia.com

The Key Elements of a Company's

Annual Report
By Jay Way
eHow Contributor

An annual report is a principal financial document that publicly traded

companies prepare for their shareholders. Annual reports are also used by
potential investors and securities analysts for stock analysis. A companys
annual report contains information about its business activities and
financial performance. Public companies in the U.S. also file the Form 10-k
report annually with the Securities and Exchange Commission; it's a more
detailed report than a companys annual report. Sometimes companies
may use the Form 10-k in lieu of providing a separate annual report to
shareholders.

Chairmans Letter

Its custom to include a message from the chairman of the board of

directors in a companys annual report. The chairmans letter is not just a
formality; it also contains substantive information about the company. The
letter usually provides an overview of past-year success, accompanied by
analysis of business performance and insights into markets and growth.
The chairmans letter also points out any shortfalls and challenges facing
the company, and often ends by giving a sense of corporate direction for
the next year.

Business Profile

The business profile is a key and basic element of a companys

annual report. The business profile section of the annual report describes
the business of the company, including what it does and its lines of
operations, any subsidiaries it owns, markets and competition, and any
risk factors for the business. Changes to business activities, such as
acquisitions or divestments, are also revealed. Certain operating issues,
like new product plans, any seasonal factors or special operating costs
may also be briefly discussed.

Managements Analysis

Both the annual report and the Form 10-k feature a section titled
Managements Discussion and Analysis. There, management discusses the
companys operations in detail by comparing past-year results with those
from prior periods. In providing operation reviews, management often
uses graphs and charts and cites data to ensure straightforward and
easily understood explanations. To complete its discussion and analysis,
management at last outlines its own expectations and plans for the
companys future growth.

Financial Statements
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Financial statements are a major element of a companys annual

report. In the report, a company makes all basic financial statements
accessible to readers, including the consolidated balance sheet, the
income statement, the statement of cash flows and the statement of
shareholders equity. The section likely includes an independent auditors
report that attests that the companys financial statements are fairly
presented and in conformity with generally accepted accounting
principles.

References

U.S. Securities and Exchange Commission: Annual Report

MacInnes Communications Group Inc.; Meeting Analysts and
Shareholders Demands to Produce an Effective Annual Report; Ron
MacInnes

The Importance of an Annual

Report
By Ian Linton
eHow Contributor

Jose Luis Pelaez Inc/Blend

Images/Getty Images
Public companies have a statutory requirement to send an annual report
to shareholders and file more detailed financial information on Form 10K
with the Securities and Exchange Commission. Private companies can
likewise use annual reports to provide important company and financial
information to investors, customers, employees and the media.

Annual Report Contents

An annual report typically contains an overview of performance and

prospects by the chief executive, financial data, results of a companys
operations, information on market conditions, new product plans, and
research and development activities, according to the SEC.
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Communicating with Investors

An annual report is an important element of a financial

communication strategy to attract and retain investors. Regular
communication updating investors on financial performance and company
developments helps engage investors in the business and build more
beneficial relationships, according to Forbes. Investors look for evidence of
sound management when they review the financial data in the report.
They can see whether sales are leveling off or the company has taken on
too much debt. To protect their investment, they also want to know that a
company is operating in a market that offers growth opportunities,
according to Entrepreneur. The sections on market conditions, product
plans, and research and development provide an indication of a
companys prospects

Building Customers' Confidence

Annual reports keep customers informed on the status of a company

and help build confidence in it as a long-term supplier. Customers depend
on their suppliers for reliable delivery of quality products and services that
are essential to their own business. Customers review the information on
operations, looking for evidence of investments in manufacturing or
quality that will ensure continuity of supply. They also check the financial
reports to ensure that the company has the stability and profitability to
remain a viable supplier. Information on product plans or research and
development activities help customers integrate a companys future
products with their own product development plans.

Attracting and Retaining Employees

Employees want to know that they are working for a progressive

company that can offer them a secure future and strong job opportunities.
The chief executives overview of performance and prospects, together
with information on product plans and market conditions help to shape the
perception of a company by employees and prospective employees.

Informing and Influencing the Media

Journalists monitor companies activities to report on financial and

business performance, as well as their impact on local communities.
Financial journalists pay particular attention to the companys results and
its prospects. Their views influence investors and affect a companys
ability to attract funds. Journalists at local newspapers and radio and TV
stations look for success stories in the annual report, as well as reporting
developments that affect the community, such as recruitment drives or
expansion plans. Local journalists stories affect the companys ability to
recruit and gain public support for new developments

References

U.S. Securities and Exchange Commission: Annual Report

Forbes: Choosing the Right Strategy When Communicating with
Investors
Entrepreneur: Four Things Investors Need to Know about Your
Startup
Photo Credit Jose Luis Pelaez Inc/Blend Images/Getty Images

Components of an Annual Report

By James Collins
eHow Contributor

pen showing diagram on financial

report/magazine image by Anton Gvozdikov from Fotolia.com
The annual report is a financial document published by most private and
public companies to summarize the major transactions of the year. The
report usually begins with a letter from the Chairman of the Board and/or
the Chief Executive Officer. It also includes the balance sheet, income
statement and the cash flow statement as well as a discussion of
company affairs and notes to the financial statements.

Letter From Management

The annual report, in addition to providing full disclosure financial

statements, is also intended as a way for management to communicate
with current shareholders. Most annual reports will have a letter from
either the Chairman of the Board of Directors or the Chief Executive
Officer. This letter provides a brief summary of company operations.

Management Discussion and Analysis

In addition to a letter from the Chairman or the CEO, executive

management will also provide a detailed summary of financial operations.
The summary provides information about asset sales, revenue growth,
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operating expenses and net income. It will also include information about
the cash flow statement, including changes from the previous reporting
cycle.

Financial Statements

There are three financial statements that are published within the
annual report: the income statement, the balance sheet and the cash flow
statement. The income statement provides an overview of company
earnings, starting with total sales and then each expense related to sales
or operations. The balance sheet provides a snapshot of company assets
and liabilities, and the cash flow statement offers information about the
sources and uses of cash in operations.

Notes to the Financial Statements

Immediately following the financial statements are the notes to the

financial statements. The notes provide additional information about each
financial statement. For instance, the notes to the income statement
provide information about the type of sales made. The notes to the
balance sheet may provide information about debt issuance or capitalized
leases, and the notes to the cash flow statement may provide information
about cash taxes paid.

References

Securities and Exchange Commission: Beginners' Guide to Financial

Statements

What Are the Functions of an

Annual Report?
By Jill Richards
eHow Contributor

Photo courtesy of you can count on me

An annual report is an excellent way to inform the public about your

organization. Not just a place for dry financial reports, you can use the
publication to tell a compelling story about the successes you've
experienced over the past year. Don't forget to let pictures make the
narrative inviting to read. Many organizations are required by law to
publish an annual report containing financial data, so using it as a
marketing tool is an additional benefit.

Message

Writing an annual report requires careful planning beforehand. The

first step is to determine what you would like to say or your message.
Consider your audience and understand to whom you are writing. Picking
a theme may help you sharpen and polish the message. Each part of your
annual report should reflect this message.

Financial Data

Nonprofit organizations that have revenue of more than $25,000 are

required to file an annual report, called Form 990, with the IRS, according
to Entrepreneur.com. Many states also require businesses to file annual
reports. As a result, one of the main functions of an annual report is to
communicate the company's financial status. The data is generally a
simple statement of both income and expenses that, in many cases, is
prepared by the organization's auditors. Transparency is the key goal
when you communicate financial data.

Donors

In the case of nonprofit organizations, the annual report is an

excellent place to recognize and thank all who have donated over the
previous year. Many organizations categorize donors by the amount of
funds they've given, and large donors often get special recognition. In
fact, donors routinely receive copies of the annual report so that they
understand the overall status of the organization to which they've given
money. Corporate annual reports do not list donors but may contain
shareholder information.

Accomplishments
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An annual report is an excellent place to list the past year's

accomplishments. Don't be afraid to point out what's gone right this year
so that your audience clearly understands the organization's
achievements. An annual report should be a key marketing publication
that shines the most flattering light on your institution.

Other Components

Many annual reports also contain a letter from the chief executive
officer, a letter from your CPA or auditor explaining your financial
standing, and a list of board members. Often, a message from the board
chairman is included. The Annual Report Library organization recommends
that the financial data section also include a balance sheet detailing all
net assets.

What Is the Purpose of Company

Annual Reports?
By Ellen Dowling
eHow Contributor

The most important purpose of a company's annual report is to

provide shareholders and potential investors with information on
how the company has been performing and how it expects to grow
in the future.

The Securities and Exchange Commission (SEC) requires that all

corporations file a Form 10-K at the end of each fiscal year. Corporations
typically include their 10-K in a comprehensive report that expands on the
financial information contained in the 10-K.

Mateusz
Zagorski/iStock/Getty Images
Most company annual reports include the following sections: Letter from
the CEO Overview of the Companys Products and Services
Management Discussion and Analysis Financial Statements Statement
from the Auditing Firm
Most corporations consider their annual reports to be more than just
updates for shareholders: They also view them as marketing tools for
consumers as well as investors. Therefore, most annual reports are
professionally produced, containing color, graphics, easy-to-read headings
and sections, and easy-to-understand charts and graphs.
Savvy investors know not to believe everything they read in a company's
annual report, as much information may be presented in ways that hide
shortcomings and exaggerate successes. (Those who read Enron's last
company annual report may have found nothing to worry about.)
The SEC was established following the stock market crash of 1929. The
Securities Exchange Act of 1934 was passed to allay consumer fears and
encourage stock investing. The company annual report is one result of this
push for corporate accountability.
hh5800/iStock/Getty Images

References

SEC: Filings & Forms

"Annual Reports: Delivering Your Corporate Message to
Stakeholders"; John Stittle; 2003
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