Uses of an Annual Report

Annual reports contain important financial information.

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 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.


Video of the Day


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 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.



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.