What is an Annual Report?

An annual report is a document that a publicly listed company publishes each year for its shareholders and the public. It summarises the company's performance over the past year, its financial position, its strategy, and the challenges it faces. For investors, it is one of the most important sources of information available.

What is in an annual report?

Most annual reports include a letter from the CEO or chairman, an overview of the business and its strategy, a review of the year's performance, and a full set of financial statements: the income statement, balance sheet, and cash flow statement. They also include notes explaining the numbers in more detail and an auditor's report confirming the accounts have been independently reviewed.

Why should investors read them?

Because they are one of the few places where a company is required to be honest about both its strengths and its risks. The risk factors section in particular can be illuminating. Companies are legally obliged to disclose the things that could go wrong, even if they prefer not to draw attention to them.

Where do you find annual reports?

Listed companies publish their annual reports on their investor relations website. Regulators also maintain databases where these filings are publicly available. In the United States, companies file a version called the 10-K with the SEC.

Do you need to read every word?

No. With practice you learn to navigate quickly to the sections that matter most: the financial statements, the CEO's letter, and the risk factors. Even a 30 minute read of a well structured annual report can tell you a great deal about the health and direction of a business.