Guide to read an Annual Report
The annual report has all the information of the company and here we will look at important sections to be read in an annual report.
Annual Report is a corporate document that companies provide to describe the operations and financial condition of the company. The annual report has all the information of the company and here we will look at important sections to be read in an annual report.
1. Management Discussion and Analysis
Reading this section will give you a good overview of the management’s way of carrying the business, industry analysis, future plans of the business and risk management strategy of the company. It will give you a good understanding of the business model of the company and various factors that may impact the business.
2. Auditor’s Report:
Auditor’s report tells us about the key concerns about the financial statements of company, as auditors give their view about reliability of the financial statements. A good audit report always mentions “True and Fair View” by the auditor in their statement.
3. Three Key Financial Statements:
Reading financial statements is of utmost importance as they tell us about the solvency, liquidity and growth aspects of the business.
In an income statement, an investor should look for the Revenue Growth, EBIT and depreciation policies to see if the assets are overvalued or undervalued, which can have direct impact on the balance sheet.
While analyzing the balance sheet, things to be checked in are if money is getting blocked in working capital, debt rising or falling and reserves of the company.
Third Statement i.e. cash flow statement, investors should check capex that is required for business to sustain and free cash flow available.
Financial statements are accompanied by notes which should be read thoroughly. Apart from them, contingent liability and related party transactions should be analyzed to prevent from any frauds.