The annual report is the most common method for most publicly held corporations to disclose their financial performance to their shareholders and the public at large. The report also reviews other major milestones the company reached throughout the last 12 months and includes predictions for the upcoming year.
Since annual reports are fairly standardized documents, they should include similar sections and information regardless of the organization. Below are some of the key sections of an annual report.
1. Letter from the Chairman or Executive Summary
Basically, this is a recap of the past year, outlining what the company has achieved and how that has or has not fallen in line with goals that were set. It’s a good idea to have this letter come from someone within your organization, like the Chief Executive Officer and/or the Chairman of the Board, as it lends credence to the information shared and puts a more personal spin on what can be a very dry document.
2. Product Overview
Your annual report should serve as a fairly accurate and comprehensive guide to your business, including the products or services you sell, content or reports you’ve put out, and examples of advertising or marketing achievements in the past year. It’s important to highlight the key divisions of your company.
3. Financial Statements and Summary
Depending on the age of your business, this section may vary in length. The financial reports may include balance sheets, budgets, costs, profits and losses. Summaries and financial notes usually accompany the financial statements in order to provide context, clarification and other explanations.
For example, most companies will highlight any trends in revenue growth, but in the cases of revenue decline, they take time to provide an explanation—if there is one (e.g. a massive storm hit the East Coast, and all of their brick-and-mortar businesses in that region were shut down for several weeks). This section is primarily where readers of your annual report will look to make determinations about the health of your organization.
4. Management Discussion and Analysis (MDA)
This section allows upper management within your organization to discuss financial trends in your industry over the past few years and how these trends may have positively or negatively affected your company’s performance. This is an unaudited section of the report that allows for more candor than the rest of the document.
In order for your report to be considered reliable, it should be audited by a certified public accountant. The independent auditor’s report should list his or her qualifications and should vouch for the validity of the report’s contents. Sometimes, this section is introduced or followed by a letter from the Chief Financial Officer.
6. Addresses and Locations
If you have a large organization, you’ll want a section of the report that lists your other locations and contact information, as well as any product or brand information associated with each.
7. List of Officers and Directors
8. Stock Price History
For publicly held companies, include a review of your stock price history, outlining upward and downward trends over time. Your stock symbol and stock exchange listing should also be present.
Things to Remember About Your Annual Report
There are a few different audiences that your annual report can address:
- General Public
While the content of the report may not change depending on the audience, you may want to look at adjusting the tone or look and feel of the report if you’re hoping to reach a wider audience.
Trying to get your annual report finalized and out the door in January probably won’t happen. It’s more important that the information be accurate and reliable, so take your time to get it right. Many large corporations aim to get their annual reports completed and in the hands of the necessary parties by June at the latest.
There is no right or wrong way to present the information in your annual report. Some companies produce elaborate pieces that look like glossy magazines, while others produce a simple report. With everything trending towards digital, you should also consider creating a PDF version of your report and housing it on your website.
Your annual report is the greatest source of information for your company and serves as a benchmark for your business’ past success and growth. There are many online resources available to help you design and create your annual report, including templates. However, the most important aspects of your report are making it accurate, factual and readable.