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What is an Annual Report and how to read it?

Posted on April 18, 2021July 7, 2023 by Finance Infopedia

What is an Annual Report?

So the first question is what is an annual report? Annual Report (AR) is an official document published by the company. The main intention of publishing an annual report is to communicate the company’s performance to the shareholders and also to attract potential investors.

For an investor, the primary source of data about the company will be the Annual Report itself. AR is so important and reliable that you can count on the data given in the AR more than the interviews from the top management and other news you get from the media and the internet.

Is there any other source to get the data from Annual Report?

Yes, you will get the same data given in the financial statements in the Annual Report (Balance Sheet, Profit and Loss Statement, and Cash Flow Statement) from many other financial websites and news channels. But remember, even though you can use these sources, it is always better to find the data from the primary source of information which is the company website. Why? Because you can make an interpretation and create your perception about the company based on the financial data of that company and based on that, you are investing your hard-earned money. After a period of time, after making a hefty investment, at a later stage, if you make a loss in your investment and later on when you realize that the data you took from a different source was wrong, you cannot go and blame the website or news channel owners for their mistake. The money you lost will be forever. So if you are serious about your investments, always better to rely on the primary source of data which is the company AR itself.

Other websites and news channels may not make mistakes intentionally. But in case it happens, you will not be in a position to realize that. What you can do is to do the initial screening and analysis, you can use other sources and once you are sure about investing in a company, better you take its annual report and re-run through the financial statement to ensure that all the data you have analyzed is accurate.

How frequently annual reports are published?

Just like the name, an annual report is published at the end of the financial year and the data contains the performance of the company during the last financial year from 1st of April to 31st of March.

How to get the Annual Report?

You can access the company’s annual report from the company’s website itself under the investor section. You can access it as a digital book or PDF document. Now, if you are an investor or a potential investor and wanted to read the hard copy, you can contact the company secretary. Email ID of the company secretary will be available on the company website and if you are lucky, you may end up with a hard copy of the company AR. If you have a major investor or a potential heavy-weight investor, the probability is high that the company will send you the hard copy.

How genuine an Annual Report is?

Now you may be wondering how genuine the data given in the Annual Report is. If you find any wrong data in the AR and if it is proved that the company tried to fake the data of information given in the AR, then the company will be held responsible for any wrong information shared through AR and they have to face any legal complication associated with that. Having said that, nowadays, we can almost assure that the data given in the AR is genuine as most of the companies do not want to make a dent in their reputation which can seriously affect their market value. Having said that, as a safe and prudent investor, it is always better to go through the AR with a suspicious mind until it is proven the other way. Any official AR should be certified by an authorized auditor to ensure that the data given in the AR is genuine and accurate. It is the responsibility of the auditor to scrutinize the data given by the company before putting the same in the AR. As proof, you can find the auditor’s certificate in the AR.

Contents of an Annual Report?

Well, the contents of Annual Reports are many. I don’t think it is really necessary to list down

 

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Finance Infopedia

Hello,

I’m Ashlin Joby Thekkan, hailing from the enchanting state of Kerala, India. For the past decade, I’ve immersed myself in the domains of personal finance management and equity investing, acquiring significant expertise in these fields.

During this journey, I discovered a concerning gap in financial literacy, affecting even those with advanced education. This realization spurred a desire to bridge this gap and guide others toward sound financial decisions.

Motivated by this goal, I turned to blogging as the ideal platform to connect with a wide audience. Thus, Finance Infopedia was born—a dedicated space where I simplify complex financial concepts and offer actionable insights.

Through Finance Infopedia, my mission is to make financial wisdom accessible to all, regardless of background or education. I invite you to join me on this exciting journey as we work together to achieve financial literacy and success!

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