A Complete Guide to Understand and Write Better Annual Reports
What is an Annual Report?
Have you been just asked by your teacher to go through annual reports of various companies and compare their performance? Well, if yes, then you have come to the right place because today, we are going to tell you what an annual report is and how can you create an annual report for your own business.
Definition of an Annual Report
An annual report can be defined as,
“As the name indicates, it is an annual publication that public corporations must provide to shareholders to describe their operations and financial conditions”.
“An annual report is a comprehensive report on a company’s activities throughout the preceding year”.
Design & Template of a Basic Annual Report
Typically, the design and template of a standard annual report comprises of the following components:
- 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.
- The back part of the report contains detailed financial and operational information.
Free Annual Credit Reports
What is a Free Annual Credit Report?
According to the FACT Act (Fair and Accurate Credit Transactions Act), each legal U.S. resident is entitled to one free copy of his or her credit report from each credit reporting agency once every 12 months, not every calendar year. The free report does not accompanies a credit score.
An annual credit report allows you to see the your credit profile which the lenders will see when they pull your credit score when you apply for loans or credit cards. This enables you to check for any errors in your report that you need to have corrected.
How Can You Get Your Free Annual Credit Report?
The AnnualCreditReport.com website is the only website that is authorized by the Federal Trade Commission to supplicate your free annual credit report.
Credit scores (including FICO scores) are sometimes given as gifts and reward points when you pay to subscribe to one of the many credit report monitoring services.
Significance of an Annual Report
The purpose of annual reports is to give the shareholders and other interested parties information about the company’s financial performance. It is considered mandatory by most jurisdictions that companies disclose their financial performance for shareholders and prospective investors at the end of financial year.
Companies listed on a stock exchange are also required to release annual reports. Most of the information disclosed in annual reports in quantitative since its main focus is on the financial operations. In addition to communicating the financial performance of the company, annual reports also communicate the readers about the technological innovations and strategic revision taken up by the company. The words by the chairperson inform the shareholders that their investment is in safe hands.
Importance of Financial Statements in Annual Report
Financial statement refers to the trio of Balance sheet, Income statement and statement of cash flow.
Balance sheet allows the management to assess the overall financial performance and compare it with preceding years. In balance sheet, the assets and liabilities are disclosed on annual basis. It is through the net worth that it is analyzed whether the company’s financial situation is declining or improving. Balance sheet also gives information of liquid assets for future years.
The job of income statement is to provide the company vital information on whether it is operating within margins and making sufficient profit or not. Income statement also helps in the identification of activities which are costing the company more than required, and those which are lucrative. This information allows the management to make financial adjustments for future years.
Cash Flow Statement
The cash flow statement shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash coming in and going out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. Thus, cash flow statement provides information beyond the scope of balance sheet and income statement.
How to Write an Annual Report?
Here are a few easy steps which will help you in learning best practices for writing an annual report for your business:
- First of all, you need to gather financial data of the company for the past twelve months.
- You also need to gain information on the key activities of the company which helped in increasing revenues.
- Discuss the financial performance of the company with the members of finance department and board in particular.
Focus on Accomplishments
- Once you have all the necessary information in hand, go through it and pick out points which focus on the accomplishments of the company.
- You must know that your readers are not interested in knowing about the company’s philosophy and values; what they are looking for is how you carried out a particular activity and how it helped you in achieving your mission and objectives.
- Talk about any innovations and strategy modifications which have helped the company gain profit. You can also share your future plans regarding the improvement of financial situation of the company.
Financial Statements and Notes
- Present accurate financial data through your balance sheet, income sheet and cash flow statement.
- For every financial entry you make, there must be an explanatory note. Refrain from wild and untruthful statements.
- The annual report should contain graphics, colorful texts, art work and photos which must be linked to the company’s accomplishments.
- Add captions; this will leave a positive impression on the shareholders and potential donors.
- Pictures validate the work your organization does. Remember, not to overdo the graphics and headings.
Set Up a Theme
- Build a theme for your annual report since it provides you a framework for graphics and language.
- For developing a theme, invite the opinion of key staff and board members. Possible themes could be ‘Thanks to Our Pioneers’ or ‘1000 Homes in Five Years’.
Highlight Your Activities
- You need to put your significant programs, activities and projects up front.
- The shareholders and corporate donors are interested in knowing the key benefits the company has provided to the community and the support you have received.
- Focus on basics like who, what, where, how and why.
Keep it Concise
Ensure that the annual report must be concise and to the point. Unnecessary and detailed information will put off the interested parties.
Set a Budget
- Design a budget for the formulation of annual report.
- The budget must include the cost of printing, hiring graphic designers, content writers, photographers and the staff time.