Annual Reports Explained: What They Are And How To Read And Write

What Is An Annual Report?

An annual report typically contains in-depth information about the organization’s financial and operational status. The report is usually accompanied by visuals, such as charts and graphs, that highlight accomplishments from the previous year as well as forecasts about future performance. The annual report is also an opportunity to tell all stakeholders the story behind the numbers.

Understanding Annual Reports

The main objective of annual reports is to provide transparency to stakeholders so they can make more informed decisions about their investment in the company. In the United States, annual reports became mandatory for public companies after the Wall Street Crash of 1929.

A typical annual report will contain:

General Corporate Information

Companies usually provide a snapshot of their business in the annual report, with information such as:

• Revenue
• Industry
• Location
• Number of employees
• Number of offices
• Founding date

Performance Highlights

The annual report is a great opportunity for a company to showcase performance highlights from the previous year, such as revenue growth, new product launches and improvements in operational efficiency.

Financial Statements

The three financial statements—balance sheet, income statement and cash flow statement—are almost always included in the annual report.

Letter to the Shareholders From the CEO

It is common for a company’s CEO to write a letter to their shareholders that outlines achievements and performance from the previous year.

Management Discussion & Analysis (MD&A)

In addition to the CEO, it is also common for annual reports to include a section written by the other C-level executives discussing performance, achievements and potentially plans for the future.

Outlook for Future Years

The annual report usually contains a section about future outlook for the company. This section may include plans for the future, detailed information about strategy, thoughts on position within the company’s respective market and more.

What Key Information Does an Annual Report Contain?

The annual report includes key financial information about a company such as:

• Profits and loss statements
• Information about a company's ability to pay outstanding debts
• The company’s growth over the years
• Retained earnings
• Revenue compared to expenses

Who Uses Annual Reports

Annual reports are most commonly used by:

• Shareholders
• Potential investors
• Employees
• Customers

How Do You Write an Annual Report? (Step-by-Step Guide)

Here are the steps for writing an annual report:

1. Write a shareholder letter.

2. Add basic information about your company, such as your industry, market share and revenue.

3. Include income and expense reports that have been audited.

4. Use business intelligence tools to tell the story of your company’s financial health.

5. Provide details about your cash flow.

6. Ensure your financial statements are easy to understand for a non-finance audience by including explanatory notes.

5 Common Pitfalls To Avoid When Writing Your Annual Report

Try to avoid these five common mistakes when writing your annual report:

1. No personality. Don’t just focus on the numbers—this is your chance to tell your company’s story and showcase your culture.

2. Too much information. Instead of overwhelming your readers with content, try to add some focus and precision to your annual report.

3. Leaving readers confused about your company. Don’t assume your stakeholders know the basics about your company. Make sure you clearly communicate what your company does, how it makes money, what its vision is and what their future goals are.

4. Not enough value for stakeholders. Your annual report will be read by investors, potential investors, employees, board members, partners, suppliers and more. Ensure your report has valuable information for all of those audiences.

5. Too difficult to skim. Nobody is going to read a wall of text. Your report needs to be formatted well and contain visuals so stakeholders can easily skim it to get the information they need.

Vena Can Help You Build Annual Reports

If you’re looking for help in building annual reports, here are a few resources to check out:

• Free Excel templates for balance sheets, income statements, board reports and more
• Easy-to-use solution for creating your financial statements and reports