{"id":14276,"date":"2021-12-06T17:31:44","date_gmt":"2021-12-06T17:31:44","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?p=14276"},"modified":"2021-12-13T17:59:35","modified_gmt":"2021-12-13T17:59:35","slug":"how-to-analyse-an-annual-report","status":"publish","type":"post","link":"https:\/\/www.5paisa.com\/finschool\/how-to-analyse-an-annual-report\/","title":{"rendered":"How to Analyse an Annual Report?"},"content":{"rendered":"\t\t
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What Is An Annual Report? How To Analyse Them?<\/span><\/strong><\/h5>

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.<\/p>

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\u2019s operations. For e.g., investors, employees, customers, suppliers, etc.<\/p>

It is uploaded on the website of the company to provide easy access. To get the annual report visit the website of the company and go to the \u2018Investors\u2019 section. Generally, there is a column as \u2018Financial and Reports\u2019 or \u2018Financial Reports\u2019 in the investors\u2019 section. You can download the PDF version of the annual report from the reports section. Alternatively, you can also contact the company to get a hard copy of the annual report.<\/p>

What To Look For In An Annual Report? <\/span><\/strong><\/h5>

The annual report has many sections that contain useful information about the company. One has to be careful while going through the annual report as there is a fragile line between the company\u2019s facts and the marketing content that the company wants you to read.<\/p>

Some of the important sections to read are:<\/p>

1) Company Profile <\/strong><\/p>

The main reason why we must understand a company\u2019s profile is because it answers all these questions-<\/p>

  • Which industry does the company fall under?<\/li>
  • Who are the its clients?<\/li>
  • Which and how many products is the company offering?<\/li>
  • Who are their competitors?<\/li>
  • Check for the its global presence.<\/li><\/ul>

    It is important to know the company\u2019s structure to make qualitative interpretations. For example, by knowing their competitors, we can compare two companies to shortlist the best one.<\/p>

    2) The company’s vision and mission statements <\/strong><\/p>

    In this section, you will get to read vision and mission statement, values and goals of the company. These statements are general in nature. Take a look at vision and mission statements of Infosys:<\/p>

    Vision: “We will be a globally respected corporation.”<\/p>

    Mission: “Strategic Partnerships for Building Tomorrow\u2019s Enterprise.”<\/p>

    Some companies also set a vision like \u201cTo touch revenues of Rs 5000 crore in 5 years.\u201d<\/p>

    3) Overview of products and financial highlights over the last 5 to 10 years <\/strong><\/p>

    Get details of products being manufactured by a company, segment wise performance in last two years, key raw materials consumed, etc. Some companies publish financial highlights of 5 to 10 years in annual reports. You will get to analyse trend of revenue, earnings before interest, tax, depreciation and amortization (EBITDA), profit after tax (PAT\/Net income \/ loss) from income (profit and loss) statement and also get a glimpse on shareholders equity, assets, debtors, liability and total debt from balance sheet over the years. Important ratios are also presented in charts over 5 to 7 years time line.<\/p>

    4) Director’s Report <\/strong><\/p>

    This part includes a financial summary, an explanation of the financial results, and major company developments. The company’s operational indicators, such as capacity additions, capex plan \/ completed during the year, order book as of financial year end, average length of stay, occupancy rates, average revenue per occupied bed, average revenue per user, and so on, are key items to look at in this section.<\/p>

    This segment is important because it provides you a quick analysis of how the company top brass looks at the business and that is perhaps the best way for you to judge the attractiveness or otherwise of the business you are invested in.\u00a0<\/p>

    5) Management discussion and analysis (MDA) <\/strong><\/p>

    The management commentary, or MD&A is one of the most useful parts of a company\u2019s annual report. The company\u2019s management shares their opinions, challenges & outlook in this section. Further, the management discusses company\u2019s goals and new projects they intend to undertake.<\/p>

    It is recommended that you read at least 3-5 years of MDA to gain a better understanding of the company’s tendencies in various economic scenarios.<\/p>

    6) Corporate Governance Report <\/strong><\/p>

    This section discusses a company’s corporate governance, including the board of directors’ composition, background information on the company’s directors and independent directors, attendance of directors at board meetings and annual general meetings, remuneration of directors, re-appointment of directors after the term ends, and the composition of sub-committees.<\/p>

    Few questions that investors may consider while assessing corporate governance:<\/p>