Annual report
Company annual
reports provide information on the health of your company to shareholders,
stakeholders, the media and your community.
At its most basic, an annual report includes:
·
General description of the industry or industries
in which the company is involved.
·
Audited statements of income, financial position,
cash flow, and notes to the statements providing details for various line
items.
·
A management's discussion and analysis (MD&A)
of the business's financial condition and the results that the company has
posted over the previous two years.
·
A brief description of the company's business in
the most recent year.
·
Information related to the company's various
business segments.
·
Listing of the company's directors and executive
officers, as well as their principal occupations, and, if a director, the principal
business of the company that employs him or her.
·
Market price of the company's stock and dividends
paid.
Annual Report as a Marketing tool :-
ü Many other
companies, however, view their annual report as a potentially effective
marketing tool to disseminate their perspective on company fortunes. With this
in mind, many medium-sized and large companies devote large sums of money to
making their annual reports as attractive and informative as possible. In such
instances the annual report becomes a forum through which a company can relate,
influence, preach, opine, and discuss any number of issues and topics.
ü An opening
"Letter to Shareholders" often sets the tone of annual reports
prepared for publicly held companies. The contents of such letters typically
focus on topics such as the past year's results, strategies, market conditions,
significant business events, new management and directors, and company
initiatives. The chairman of the board of directors, the chief executive
officer, the president, the chief operating officer or a combination of these
four usually sign the letter on behalf of company management. Some of these
letters may run a dozen or more pages and include photographs of the CEO in
different poses (some even expound on topics that, while perhaps of only
tangential interest to stockholders and other readers, are of importance to the
CEO). More often, however, these letters are significantly shorter, amounting
to 3,000 words or fewer.
ü Annual reports
usually advance a theme or concept that has been embraced by company management
and/or its marketing wings. Catch phrases such as "Poised for the
Twenty-first century" or "Meeting the Needs of the Information
Age" can unify a company's annual report message. In addition, particular
events or economic conditions of a given year may be incorporated into the
themes advanced in an annual report. Companies also use milestone
anniversaries—including industry as well as company anniversaries—in their
annual reports. Promoting a long, successful track record is often appealing to
shareholders and various audiences, for it connotes reliability and quality.
Still other companies have developed a tried-and-true format that they use year
after year with little change except updating the data. Whatever the theme,
concept, or format, the most successful reports are ones that clearly delineate
a company's strategies for profitable growth and cast the firm in a favorable
light.
Target Audience for Annual
Reports :-
Current
shareholders and potential investors remain the primary audiences for annual
reports. Employees (who today are also likely to be shareholders), customers,
suppliers, community leaders, and the community-at-large are also targeted
audiences.
Employees
·
The annual report serves many purposes with
employees. It provides management with an opportunity to praise employee
innovation, quality, teamwork, and commitment, all of which are critical
components in overall business success. In addition, an annual report can also
be used as a vehicle to relate those company successes—a new contract, a new
product, cost-saving initiatives, new applications of products, expansions into
new geographies—that have an impact on its work force. Seeing a successful
project or initiative profiled in the annual report gives reinforcement to the
employees responsible for the success.
·
The annual report can help increase employee
understanding of the different parts of the company. Many manufacturing
locations are in remote areas, and an employee's understanding of the company
often does not go beyond the facility where he or she works. An annual report
can be a source for learning about each of a company's product lines, its
operating locations, and who is leading the various operations. The annual
report can show employees how they fit into the "big picture."
·
Employees also are often shareholders. So, like
other shareholders, these employees can use the annual report to help gauge
their investment in the company. In this case, the annual report can serve as a
reminder to employees of the impact that the work they do has on the value of
the company's stock value.
Customers
Customers want to work with
quality suppliers of goods and services, and an annual report can help a
company promote its image with customers by highlighting its corporate mission
and core values. Describing company initiatives designed to improve
manufacturing processes, reduce costs, create quality, or enhance service can
also illustrate a company's customer orientation. Finally, the annual report
can also show the company's financial strength. Customers are reducing their
number of suppliers, and one evaluation criterion is financial strength. They
want committed and capable suppliers that are going to be around for the long
term.
Suppliers
A company's abilities to meet
its customers' requirements will be seriously compromised if it is saddled with
inept or undependable suppliers. Successful companies today quickly weed out
such companies. By highlighting internal measurements of quality, innovation,
and commitment, annual reports can send an implicit message to suppliers about
the company's expectations of outside vendors. Sometimes an annual report will
even offer a profile of a supplier that the company has found exemplary. Such a
profile serves two purposes. First, it rewards the supplier for its work and
serves to further cement the business relationship. Second, it provides the
company's other suppliers with a better understanding of the level of service
desired (and the rewards that can be reaped from such service).
The Community :-
Companies invariably pay a
great deal of attention to their reputation in the community or communities in
which they operate, for their reputations as corporate citizens can have a
decisive impact on bottom-line financial performance. A company would much
rather be known for its sponsorship of a benefit charity event than for
poisoning a local river, whatever its other attributes. Annual reports, then,
can be invaluable tools in burnishing a company's public image. Many annual
reports discuss community initiatives undertaken by the company, including
community renovation projects, charitable contributions, volunteer efforts, and
programs to help protect the environment. The objective is to present the company
as a proactive member of the community. This sort of publicity also can be
valuable when a company is making plans to move into a new community. Companies
seek warm welcomes in new communities (including tax breaks and other
incentives). Communities will woo a company perceived as a "good"
corporate citizen more zealously than one that is not. The good corporate
citizen also will receive less resistance from local interest groups. The
company's annual report will be one document that all affected parties will
pore over in evaluating the business.
Reading an Annual Report :-
·
People read annual reports for widely different
purposes and at dramatically different levels. Generalizations, however, are
difficult. The stockholder with five shares might be as careful and
discriminating a reader of an annual report as the financial analyst
representing a firm owning one million shares.
·
It may require an MBA to understand all the details
buried in an annual report's footnotes. Nevertheless, a good understanding of a
company is possible by focusing on some key sections of the report.
Company Description
Most companies will include a
description of their business segments that includes products and markets
served. Formats vary from a separate fold-out descriptive section to a few
words on the inside front cover. A review of this section provides readers with
at least a basic understanding of what the company does.
The Letter
Whether contained under the
heading of Letter to Shareholders, Chairman's Message, or some other banner,
the typical executive message can often provide some informative data on the
company's fortunes during the previous year and its prospects for the future.
Readers should always bear in mind that it is invariably in the executive's best
interests to maintain a fundamentally upbeat tone, no matter how troubled the
company may be. This is often the most widely read portion of the entire annual
report, so business owners and managers should make a special effort to make it
both informative and engaging.
Management's Discussion and
Analysis (MD&A)
This section of an annual
report provides, in a fairly succinct form, an overview of the company's
performance over the previous three years. It makes a comparison of the most
recent year with prior years. It discusses sales, profit margins, operating
income, and net income. Factors that influenced business trends are outlined.
Other portions discuss capital expenditures, cash flow, changes in working
capital, and anything "special" that happened during the years under
examination. The MD&A is also supposed to be forward-looking, discussing
anything the company may be aware of that could affect results either
positively or negatively. An MD&A can be written at all different levels of
comprehension, but business consultants generally urge companies to make the
information—from balance sheets to management analysis—comprehensible and
accessible to a general readership. This means forsaking jargon and hyperbole
in favor of clear and concise communication.
Financial Summary
Most companies will include a
five-, six-, ten-, or eleven-year summary of financial data. Sales, income,
dividends paid, shareholders' equity, number of employees, and many other
balance sheet items are included in this summary. This section summarizes key
data from the statements of income, financial position, and cash flow for a
number of years.
Management/Directors
A page or more of an annual
report will list the management of the company and its board of directors,
including their backgrounds and business experience.
Investor Information
There almost always is a page
that lists the company's address and phone number, the stock transfer agent,
dividend and stock price information, and the next annual meeting date. This information
is helpful for anyone wanting additional data on the company or more
information about stock ownership.
Packaging the Annual Report :-
ü For most companies, large or small, the financial information and the
corporate message are the most important aspects of an annual report. Many
companies also want to be sure, however, that their targeted audiences are
going to read and understand the message. This is less essential for privately
owned businesses that do not need to impress or soothe investors, but they too
recognize that disseminating a dry, monotonous report is not in the company's
best interests.
ü The challenge for producers of annual reports is to disseminate
pertinent information in a comprehensible fashion while simultaneously
communicating the company's primary message. In many ways the annual report
serves as an advertisement for the company, a reality that is reflected in the
fact that leading business magazines now present awards to company reports
deemed to be of particular merit. In recent years, companies have also chosen
to make their annual reports available in a variety of electronic media that
lend themselves to creative, visually interesting treatments.
ü Of course, the personality of the company—and perhaps most importantly,
the industry in which it operates—will go a long way toward dictating the
design format of the annual report. The owner of a manufacturer of hospital
equipment is far less likely to present a visually dramatic annual report to
the public than are the owners of a chain of suntanning salons. The key is
choosing a design that will best convey the company's message.
Summary of the Annual Report :-
ü Few major trends
have shaken the tradition of annual reports, but one is the "summary
annual report." In 1987, the SEC eased its annual reporting requirements.
It allowed companies to produce a summary annual report, rather than the
traditional report with audited statements and footnotes. Public disclosure of
financial information was still required, but with the new rulings, filing a
Form 10-K—provided it contained this information and included audited financial
data and other required material within a company's proxy statement (another
SEC-mandated document for shareholders)—met SEC requirements. Promoters of the
summary annual report see it as a way to make the annual report a true
marketing publication without the cumbersome, detailed financial data.
Financial data are still included, but in a condensed form in a supporting
role. Since its use was approved, however, the summary annual report has not
gained widespread support.
ü In some respects,
annual reports are like fashions. Certain techniques, formats, and designs are
popular for a few years and then new ideas displace the old. Several years
later, the old ideas are back in vogue again. Other formats are
"classic," never seeming to go out of style or lose their power. A
key to a successful annual report is not getting caught up in a trend, and
instead deciding what works best for conveying the message.
------------------------------- The end -------------------------
Thank you,
Chandra Sekhar Reddy
Author and Sole proprietor,
SCR Gallery
Website : https://www.scrgallery.com
Blogger : https://scrgalleryindia.blogspot.com
E-mail : scr@scrgallery.com
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