Annual reports are publications that are issued annually with the primary objective of sharing information with shareholders and investors of the company, apart from reasons related to regulatory compliance. Annual reports share vital information on the company’s operations and financial conditions. While the front part of the report consists of an interesting combination of graphics, photos, and attractive content, all of which are chronicle the previous year’s activities, the back part of the report talks about the detailed financial and operational information. Annual report contents are a primary source of information to the stakeholders. The document provides detailed information about the company, management views, and an authentic financial record that encourages investors to make informed decisions for their future investments.

Normally, annual report runs into 100s of pages and most won’t show interest to read them fully. For those who are looking at annual report for first time, it is always better to go through it fully. In subsequent reports, can skip most of the part and focus only on the relevant sections required for investors. This article tries to highlight the sections of the annual report that one can look at if not interested to go through the report fully.

Things to look for in an Annual Report

1. Vision and Mission Statements of The Company

A Mission Statement defines the company's business, its objectives and its approach to reach those objectives. A Vision Statement describes the desired future position of the company. A company’s mission and vision statements are what your company stands for and where it wants to head in the future.

Read Type – Quick Glance
2. Corporate information

In this section, you will get details of directors, bankers, auditors and registered and corporate office. Key things to look is designation of each board members, in case auditors are reputed/well known, they provide additional comfort to the company you are investing.

Read Type – Quick Glance
3. Financial highlights

Financial Highlights is basically an extract from the company's financial statements, which include profit and loss statements, cash flow statement, and balance sheets. This category helps to have a quick glance as it summarises the company's key financial figures without demanding you to jump into the details of it. If a company has subsidiary, then there will be standalone and consolidated financial statements. In such case, always look at consolidated statements.

Read Type – Detailed
4. Product Overview

Review the overview sections that describe a company's products and services. Successful companies have a dominant market position, which they seek to protect by investing in research and development. They refresh existing products and launch new products to market every year. For example, a growing technology company will be at the forefront of changes in technology standards and stay a step ahead of its competitors. A successful biotechnology company will have several new compounds at different stages in the clinical approval process, while a restaurant chain will redesign its stores and add new menu items.

Read Type – Detailed
5. Management discussion and analysis (MDA)

This section provides information on trends in the industry, SWOT analysis of the company, insights on key line items of financial statements and risk factors/concerns affecting the company performance. You will get relevant information to understand the industry while reading this section. It’s appreciated to read at least 3-5 years of MDA to understand trends of the company in different economy scenario.

Read Type – Detailed
6. Report on Corporate governance

This section gives insight on corporate governance followed by a company, composition of board of directors, brief background information on directors and independent directors of the company, attendance of directors in board meetings and annual general meetings, remuneration of directors, re-appointment of directors after completing the term, composition of sub-committees, etc. Key things to look here is composition of board of directors, sub committees and attendance records of directors during meetings, relate remuneration paid to directors with profits earned by the company.

Read Type – Quick Glance
7. Information on shares of the company

This section provides information on historical performance of share price, share holding pattern of the company, pledging of shares by promoters during the year, split of shares, bonus shares distributed, etc.

Read Type – Quick Glance
8. Auditor’s report

This section gives information on comments by auditors on the financials of the company. You look out who are the auditors for the company and any qualifications by the auditors on internal processes. The information on change in accounting policy if any will be highlighted in this section.

Read Type – Quick Glance, unless there is anything flagged by auditors
9. Financial statements

This section provides detailed information on profit and loss accounts (income statement), balance sheet as on year end, cash flow statement and schedules of the financials for two years. Analysing numbers from this section help us to check financial health of the company. We will explain in other article key things to look in financial statements for fundamental analysis of a company.

Read Type – Detailed
10. Notes to Accounts

This is one section of the annual report that provides information on accounting policy followed by a company such as comments on depreciation method, forex losses/gains, segmental reporting, inventories, liabilities, leases, etc. It’s always advisable to study annual reports of at least 3-5 years as the reader will be able to understand minute details like changes in accounting year or accounting policy that can directly affect the company’s revenue, key operations of the company, financial management’s view/stand in various economic trends.

Read Type – Quick Glance, unless you feel something is not right in financial statements
11. Share Holding Pattern

This section contains the shareholder details split as promoters and non-promoters. Among non-promoters. It will further divide into intuitions and non-institutions. Anyone who holds more than 1% of the share will be mentioned in this section. Institutions presence will comfort some investors. It will also highlight if promoters have pledged any of their share holding or not. One of the important sections to look at

Read Type – Detailed

Most of the retail investors never goes through annual reports of the company that they are investing in. It is like deploying capital without knowing what the business is doing properly. Some may get product information etc from company website, but annual report gives all the information that an investor needs in one place. So it is important for investors to go through the annual report, spend like an hour or two in reading the same. This will give more understanding of the business you are investing into.