The Key Elements of a Company's Annual Report

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 company's 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 company's annual report. Sometimes companies may use the Form 10-k in lieu of providing a separate annual report to shareholders.

Chairman’s Letter

It's custom to include a message from the chairman of the board of directors in a company's annual report. The chairman's 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 chairman's 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 company's 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.

Management’s Analysis

Both the annual report and the Form 10-k feature a section titled Management's Discussion and Analysis. There, management discusses the company's 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 company's future growth.

Financial Statements

Financial statements are a major element of a company's 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 auditor's report that attests that the company's financial statements are fairly presented and in conformity with generally accepted accounting principles.

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