How Important is Business Annual Report

What Is an Annual Report?

An annual report is a document that public corporations must provide annually to shareholders that describes their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos, and an accompanying narrative, all of which chronicle the company's activities over the past year and may also make forecasts about the future of the company. The back part of the report contains detailed financial and operational information.

KEY TAKEAWAYS

• An annual report is a corporate document disseminated to shareholder that spells out the company's financial condition and operations over the previous year.

• It was not until legislation was enacted after the stock market crash of 1929 that the annual report became a regular component of corporate financial reporting.

• Registered mutual funds must also distribute a full annual report to its shareholders each year.

Understanding Annual Reports

Annual reports became a regulatory requirement for public companies following the stock market crash of 1929, when lawmakers mandated standardized corporate financial reporting. The intent of the required annual report is to provide public disclosure of a company's operating and financial activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to evaluate the firm's financial performance and to make investment decisions.

Typically, an annual report will contain the following sections:

• General corporate information

• Operating and financial highlights

• Letter to the shareholders from the CEO

• Narrative text, graphics, and photos

• Management's discussion and analysis (MD&A)

• Financial statements, including the balance sheet, income statement, and cash flow statement

• Notes to the financial statements

• Auditor's report

• Summary of financial data

• Accounting policies

In the U.S., a more detailed version of the annual report is referred to as Form 10-K and is submitted to the U.S. Securities and Exchange Commissions (SEC). Companies may submit their annual reports electronically through the SEC's EDGAR database. Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors. Under the proxy rules, reporting companies are required to post their proxy materials, including their annual reports, on their company websites.