- What does the company do to earn revenue?
- Is the company making profit or loss?
- What is their financial history?
- Is the business scalable?
- How healthy is cash flow in the business?
What is an Annual Report?An Annual Report is a document that contains summary of important activities a company has undertaken during the year. It includes financial performance as well. It is an official communication by the company to its stakeholders. They are a group of people that have an interest in the decision a company make. They are the ones who can either affect or be affected by the company's operations. For e.g., investors, employees, customers, suppliers, etc.
Where can one find a company’s Annual Report?If you are a shareholder of a company, you will receive their Annual Report every year. Most companies send their reports on shareholder’s registered Email ID. However, you can request for a physical copy through their website. If you are not a shareholder, you can find the Annual Reports on a company's website. Visit their webpage and under the ‘Investor Relations’ menu-section download the Annual Report. Here is an example of how to find Dabur India Limited’s Annual Report -
Importance of Annual Report:Would you trust an outsider to give information about a company? Or would you trust the company itself? Annual Report is the company's official document. This report is crucial in making an informed investment decision. It is an important source to do fundamental analysis of a company. Annual Reports are lengthy hence readers tend to skim through the document. But you must not do this mistake. We have shortlisted a few sections of Annual Report that you must go through without fail. By going through these sections you can focus on what is important and must read.
Important elements of an Annual Report:
- Company Profile
- Which industry does the company fall under?
- Who are the its clients?
- Which and how many products is the company offering?
- Who are their competitors?
- Check for the its global presence.
- Chairman’s Message
- Management Discussion and Analysis (MD&A)
- Corporate Governance
- Who represents shareholders on the company’s board?
- Who are the significant investors in the company?
- How strong are the shareholder rights?
- Check their policies and Credit Rating.
- How is the company managing long-term risks? (such as managing human capital, long- term sustainability, etc.)
- Financial Statements
- Assets: What the company owns.
- Liabilities: What the company owes to its stakeholders.
- Equity: Shareholders' stake in the company.
- Cash Flow from Operating Activity - Comprise the day- to- day operations of the company.
- Cash Flow from Investing Activity - Comprises of investments made by the company. For example, acquisition or disposal of long-term assets.
- Cash Flow from Financing Activity - Comprises of transactions involving debt and equity.
- Notes to Accounts:
- Auditor’s Report
- Responsibilities of the auditor
- The purpose of the audit
- Auditor’s findings and opinions.