Annual Reports: What Are They and Why Do Investors Care?

What are annual reports?

Annual reports are documents prepared by a company to provide important information to investors. They typically include a message from the company’s CEO, as well as data related to the company’s financial matters and information about its business activities over the past year.

What can you learn from the annual report?

In addition to hard financial facts such as sales, expenses, and profits, you can also learn more about the context in which the business operates, its culture, and its leadership.

Many CEOs work hard to write their messages to shareholders, using the letter as an opportunity to provide insight into the state of the sectors or industries to which the company belongs.

The CEO’s letter can clarify the nature of the challenges or opportunities the company has faced, explain the reasons behind the numbers in the financial section, and provide a vision for the company’s future leadership.

The nature and content of the annual report can provide important indicators about the type of company in which you are trusting your capital. Look for signs of shareholder-friendly management that indicate you are dealing with people who care about protecting your assets, such as:

• Clear dividend policy
• Shares owned by executives
• Reasonable executive compensation
• Honest communication

Over time, you will also learn how to recognize signs that indicate you are dealing with a company that cannot be trusted or is incompetent. The company’s annual report is a good starting point for looking for these signals.

How can you obtain a copy of the company’s annual report?

Most companies publish their annual report on their website, making it easy to obtain an annual report for any company you wish to invest in. You can usually find it in a section titled “Investor Relations” or something similar. You can also call or email the investor relations department and request a copy of the report to be sent to you by mail.

Source: https://www.thebalancemoney.com/annual-reports-what-they-are-and-why-investors-care-357304