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Ирина Моргушина

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Business IN English #15 Anatomy of an Annual Report


ДЕЛОВОЙ АНГЛИЙСКИЙ

РУКОВОДИТЕЛЯМ, МЕНЕДЖЕРАМ, СТУДЕНТАМ 

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Business IN English

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for SMART people  

Archive: http://www.english4business.narod.ru/businessinenglish_archive/archive.htm    

Issue # 15 

Read it online  http://www.english4business.narod.ru/businessinenglish.htm  

Anatomy of an annual report

Listed companies, whose shares are sold on the stock exchange, have to present their accounts to the public in an annual report.  It will be useful when trying to decide on a stock purchase or researching a job offer, to understand how strong or weak a company is. An annual report is prepared by the management of a company and explains the company’s makeup, its character and vision; it discusses the company's financial affairs and, most important, its financial ups and downs of the last 12 months.

Although the report is addressed to shareholders, other people who have a stake in the business - stakeholders such as employees, suppliers, customers, and lenders - will find it informative. 

However, finding the information one needs can be like pulling a needle out of a haystack. You need to know where to look, what to pay attention to, and how to use what you’ve found. 

Annual reports come in a wide range of formats, with sections not necessarily ordered the same way or presented under the same headings. While most annual reports contain optional elements, all reports contain certain information required by the federal government. 

Required elements usually include:

Optional elements include:

·          Report of management

·          Auditors’ report

·          Management discussion

·          Financial statements and notes

·          Selected financial data

·          Financial highlights

·          Letter to stockholders

·          Corporate message

·          Board of directors and management

·          Stockholder information

Report of management. This letter, usually from the board chairperson and the chief financial officer, takes responsibility for the validity of the financial information in the annual report, and states that the report complies with legal requirements. 

Letter to stockholders. This letter may be from the chairperson of the board of directors, the chief executive officer, or both. It can provide an analysis and a review of the year’s events, including any problems, issues, and successes the company had. It should cover developments, goals achieved (or missed), actions taken and industry conditions. It usually reflects the business philosophy and management style of the company’s executives, and often it lays out the company’s direction for the next year. Compare the CEO’s current letter with letters from past reports. How does what was promised stack up against what actually happened?

Corporate message. If you don’t know much about the company, this can be a good place to start. Some analysts, business executives, and stockholders consider this message an advertisement for the company. However, it almost always reflects how a company sees itself, or how it would like others to see it. Here, the company can explain itself to stockholders, using photographs, illustrations, and text. This message may describe what the company does, what products it sells, how, where and when, cover the company’s lines of business, markets, mission, management philosophy, corporate culture, and strategic direction.  

Auditors’ report.  It shows that the company has had its financial statements audited by an independent firm of certified public accountants (CPAs). This summary of the findings of an independent firm shows whether the financial statements are complete, reasonable, and prepared consistent with accepted accounting principles at a set time. Basically, it’s an outside stamp of approval. However, check it to be sure the approval is unqualified. If the report notes that some parts of the financial statements don’t conform, this could be a red flag. The important thing to look for here is what the qualifications are.

Financial highlights. Probably the most often-read section of any annual report, these highlights give a quick summary of a company’s performance and provide key financial data (overall revenues, changes in stock price) and interpretations of the data to give the reader a quick, general idea of how the company performed during the past year. However, it might gloss over (or simply not mention) certain facts that don’t fit with the intended impression.

Selected financial data. This information summarizes a company’s financial condition and performance over five years or longer. Data for making comparisons over time may include revenue (sales), gross profit, net earnings (net income), earnings per share, dividends per share, financial ratios such as return on equity, number of shares outstanding, and the market price per share.

Financial statements and notes. These statements provide the raw numbers for the company’s financial performance and recent financial history. Required statements: statement of earnings, statement of financial position, and statement of cash flows. These statements include a comprehensive set of related notes that provide explanations, additional detail, and supplementary financial information. If, for example, a figure has changed from the previous year because of a new company acquisition, merging, other major sale or purchase, changes in government policy, it will be noted here. Look for the growth of profits and operating income.

Management discussion. This series of short, detailed reports discusses and analyzes the company’s performance. It covers results of operations, and the adequacy of liquid and capital resources to fund operations.

Board of directors and management. This list gives the names and position titles of the company’s board of directors and top management team. Sometimes companies include photographs.

Stockholder information. This information covers the basics — the company’s corporate office headquarters, subsidiaries, brands and addresses, the exchanges on which the company trades its stock, the location and time of the next annual stockholder’s meeting, and other general stockholder service information. Stockholder information is usually in the back of the annual report.

Language in focus:

a red flag

account

accounting principles

acquisition

annual report

annual stockholder’s meeting

approval (unqualified)

audited by

auditors’ report

board of directors and management

brand

certified public accountant (CPA)

chairperson of the board of directors

chief executive officer

chief financial officer

company’s board of directors

comply with

conform

consistent with

corporate culture

corporate message

cover developments

dividends per share

earnings per share

exchange

executives

financial affairs

financial highlights

financial history

financial performance

financial ratios

financial statements and notes

financial ups and downs

fit with the intended impression

fund operations

gloss over

goals achieved (or missed)

gross profit

headquarters

industry conditions

interpretation of the data

lay out the company’s direction for

legal requirements

lender

letter to stockholders

lines of business

liquid and capital resources

listed company

makeup

management discussion

management philosophy

management style

merging

net earnings (net income)

number of shares outstanding

operations income

price per share

provide an analysis

provide key financial data

pull a needle out of a haystack

qualification

quick summary

raw numbers

reasonable

reflect the business philosophy

report of management

research a job offer

return on equity

revenue (sales)

share

shareholder

stack up against

stake

stakeholder

stamp of approval

statement of cash flows

statement of earnings

statement of financial position

stock

stock exchange

stock price

stock purchase

stockholder

strategic direction

subsidiary

summary of the findings

top management team

trade

validity

vision

 
 
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In this issue:

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