Company Annual Reports

The Annual Report is an important document through which companies communicate details of their strategies, financial results and activities to shareholders and other stakeholders. Annual reports are usually very long. However, it is not necessary to read the whole document to be able to understand companies’ strategies and activities. It is possible to focus on specific parts of the annual report and have a good understanding of the business.

For this unit you need to have an understanding of the following tables in the annual report:

• Consolidated financial position/Balance Sheet:
  • Assets = Liabilities + Shareholders’ Equity
• The statement of profit or loss/Income statement
• Cash Flow Statement

Consolidated financial position/Balance Sheet

The balance sheet is a financial statement that reports a company’s assets, liabilities, and equity as of a specific date. It provides a snapshot of a company’s financial position at a given moment in time. The balance sheet is an important tool for stakeholders, including investors, creditors, and management, to assess the company’s solvency and ability to meet its financial obligations.

The assets section of the balance sheet lists all of the company’s resources, including cash, investments, property, and equipment, in order of liquidity. Liabilities, on the other hand, are obligations that the company owes to others, such as loans, accounts payable, and taxes owed. Equity represents the residual interest in the assets of the company after deducting its liabilities. This section includes information about the company’s owners, including common stock, retained earnings, and other equity.

The balance sheet must balance, meaning that assets must equal the sum of liabilities and equity. This balance provides a picture of the company’s financial position and its ability to pay its debts and generate profits.

The statement of profit or loss/Income statement

The profit and loss statement, also known as an income statement, is a financial report that summarizes a company’s revenues and expenses over a specified period of time, typically a fiscal quarter or year. The purpose of the profit and loss statement is to show how much money a company has earned and spent during the reporting period and what its net income or loss was.

The profit and loss statement starts with the company’s total revenue, which is the amount of money it has earned from the sale of goods or services. This is followed by a list of all the expenses the company incurred during the period, such as the cost of goods sold, marketing expenses, salaries, rent, and taxes. The sum of all expenses is subtracted from total revenue to arrive at the company’s net income or loss.

The profit and loss statement provides valuable information about a company’s financial performance, including its operating efficiency, profitability, and ability to generate revenue. Investors, analysts, and other stakeholders use this information to assess a company’s financial health and make informed decisions about investing in the company.

Cash Flow Statement

The cash flow statement is a financial report that provides information about a company’s cash inflows and outflows over a specified period of time, typically a fiscal quarter or year. It gives stakeholders a comprehensive picture of the company’s cash position, showing how much cash was generated from operations, how much was used for investments, and how much was provided by financing activities. It gives stakeholders a comprehensive picture of the company’s cash position and its ability to generate cash from operations, make investments, and obtain funding from lenders and investors.

The cash flow statement is divided into three main sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Cash flows from operating activities show the cash generated from the company’s day-to-day operations, such as the sale of goods and services. This section also includes information about the company’s cash payments for expenses such as salaries, rent, and taxes.

Cash flows from investing activities show the cash used for investments in property, plant, and equipment, as well as investments in other companies. This section provides information about the company’s long-term cash needs and its ability to fund growth.

Cash flows from financing activities show the cash provided by or used for financing activities, such as issuing or repaying debt or issuing new stock. This section provides information about the company’s ability to obtain funding from lenders and investors.