Business Profile

Want to Know About Company Performance?

By the end of each financial year, all publicly traded companies will release a report to tell shareholders, prospective investors, customers and others about the company performance, i.e. how business ran in the past year. We call this the "annual report". The report includes quantifiable and unquantifiable information which has been audited and required by the SEC (Securities and Exchange Commission). Reading annual reports is an excellent way to familiarise yourself with a company and its market.

Annual Reports

Description

An annual report is a report presented each year by the directors to the members and shareholders of a company, giving information about the company's trading activities and including certain documents which must be produced by law, namely the balance sheet, the profit and loss account and the auditors' and directors' reports.

Format of Annual Reports

Most annual reports follow a very similar format, in terms of the different types of information they contain.

Common sections are:

-- A letter from the company chairman / CEO (The Chairman's Statement)

-- The financial highlights

-- The balance sheets

-- The profit and loss statements

-- New business reports

-- The annual review

-- Projections

-- Outstanding stock shares and value

-- A complete list of the board members

Chairman's Statement

Description

The Chairman's Statement is made by the chairman of a company at its annual general meeting and is often included in the annual report. The statement is not required by law and there are no regulations as to its contents, but it often contains interesting and useful information about the company.

Who reads the Chairman's Statement?

Reading the narrative element of an annual report in conjunction with the financial statements helps with their interpretation, and it can give a telling overview of the company even before the finances are examined. Shareholder surveys suggest that Chairman's Statement is the most readable section of an annual report, perhaps because it is in narrative form and also likely to deal with future prospects. And it is also considered highly useful by analysts. Research shows that the content of the Chairman's Statement indicates performance changes or even whether a company is at risk of bankruptcy.

Balance Sheets

Description

A balance sheet is a statement showing the financial condition of a business on a certain date (usually at the end of an accounting period) with an aim of giving, in a single document, some means of measuring the financial position of the business and of judging its value as an investment. It contains the balances of the ledger accounts separated into liabilities (mainly capital invested, creditors, reserves, e.g. for staff pensions) and assets (mainly land and buildings, machinery, stock-in-trade, cash, investments, and amounts receivable from debtors).

What is a balance sheet used for?

A balance sheet helps any interested person quickly get a handle on the financial strength and capabilities of the business. Is the business in a position to expand? Can the business easily handle the normal financial ebbs and flows of revenues and expenses? Or, should the business take immediate steps to bolster cash reserves?

Balance sheets can identify and analyse trends, particularly in the area of receivables and payables. Is the receivables cycle lengthening? Can receivables be collected more aggressively? Is some debt uncollectable? Has the business been slowing down payables to forestall an inevitable cash shortage?

Balance sheets, along with income statements, are basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant the firm.