How to Read Annual Reports – Investing 101 ep.5

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Reading the annual report of a company can help investors decide whether to invest in the stock of the company. The annual report of any company, like say, Bajaj Broking, has a plethora of information such as data on the company’s financials, future growth prospects, and more. The information is there for the asking, but investors should know how to read annual reports along with some other basic information to gain an in-depth view. You can read company analysis reports to get a clear picture of a company and its operations. 

Additional Read: Q2- Quarterly Results Dashboard

Annual Reports – Some Basics

An annual report of a publicly listed or publicly traded company refers to a detailed report highlighting the activities of the company, its performance in the previous year, future prospects including goals and aims, a letter to shareholders from the company’s CEO/President, a report by an independent auditor, and financial statements. 

Learning the basics about how to read an annual report is essential to understand how a company operates. If you wish to read the annual report of any company, like say, that of Bajaj Broking, you can locate it at the company’s website. Annual reports come out every year, and these are updated with new information as and when it is released by the company. Using the most basic example to understand how annual reports are structured and where you can find different information pertaining to the company, the annual report of Bajaj Broking can be read as a good example. 

Why is the Annual Report Important?

The annual report of any company gives investors and other interested individuals detailed data and information regarding the financial health of the company in question. Furthermore, any company’s annual report includes information about the performance of the company, typically in the past year. Along with this knowledge, readers gain an understanding of the company’s future prospects in terms of growth and expansion. 

Annual reports are essentially written and distributed to shareholders of the company to give them an idea about the company’s working and its overall financial health in the industry. While annual reports are important for shareholders and other stakeholders to remain invested, they are vital for new and prospective investors who may be conducting an analysis of the company before taking the leap to invest. You could say that an annual report is an analysis report of a company since it is examined thoroughly by investors. 

Main Sections

For any stakeholders, be it existing shareholders or future investors, annual reports consist of 5 main sections. These sections are explained below: 

  1. A Letter to Shareholders from the CEO/President

This essentially consists of the Chairman, CEO, or President of the company addressing shareholders and other company stakeholders. In this letter, the head of the company shares their ideas and thoughts, giving their take on the performance and future goals of the company. In any industry annual report, the letter of the CEO gives you clues about how the annual report may be read further. 

  1. A Discussion and Analysis by the Management

In this section, the management of the company provides its view of the company and its working, giving readers an explanation of finances and operations. 

Additional Read: Q2- Quarterly Results

  1. Financial Statements

This is a vital section of any company’s annual report as the financial status and other financial details are highlighted. One of the key sections to study in the fundamental analysis of any company, and vital to potential investors, this section comprises the company’s balance sheet, income statement, equity statement, and cash flow statement. 

  1. Notes on the Financial Statement

Relating to the financial statement, this section enhances its understanding by providing additional clarifications. Company analysis reports about financials are vital as they clarify key points in the main financial statement of the company. 

  1. An Auditor’s Report

With a view to promote transparency in reporting a company’s overall standing, every company releases a review that is created by an independent/external auditor. 

Additional Read: QSR Stock Investment

Reading Annual Reports

An annual report has a lot of information and investors may not know where to start reading. The first thing to do if you are reading an annual report, the Bajaj Broking report, for instance, is to begin with the overview of the company. This essentially tells you all about the company’s position in the industry/sector, the services/products it offers, and other details. After this, you may read the letter to the shareholders and gain a little more insight into the company from the perspective of the leadership.

As you gradually grasp some macro-level information, you will probably understand more about where the company is headed in its growth trajectory. Additionally, you will gain an insight into the company’s vision and mission according to its leadership team. As a next step, you may go ahead and read the management’s analysis of the company, followed by the company’s financial reports. From this, you gain a deep understanding of the financial businesses that are run, say, by a company like Bajaj Broking. How to read annual reports is important because potential investors know what parts to stress when they are aiming to make investments. 

Additional Read: Grow Your Wealth

Reading Reports with Care

When individuals read financial sections in the annual reports of any company, they may find it challenging at first. However, the financial sections may be the most vital for investors as they contain the prospects and liabilities of the company. The statements of income and revenue are also crucial as you get detailed input about expenses, cash inflows/outflows, etc. Finally, the independent audit report gives you a sense of transparency about the company’s functioning, operations, and finances. 

For any investor, a company’s annual report holds the key to information on various aspects of the company from financials to corporate governance and culture. If you wish to invest in the stock market, an annual report of any company whose stock you wish to buy can give you information that may drive your decisions and educate you about vital markers, like debt, market share, certain ratios, and other data.

 

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