Financial Accounting

Introduction to Annual Reports

To carryout a financial analysis of a company, analysts need financial statements of the business. For many students, these are sourced from annual reports published by the business. This article explains these reports and guides students on how to source these.

Annual Reports

If you are required to write a dissertation or a coursework on financial performance of a company (or companies), you will need financial data of that company. This data can be obtained from many sources including companies’ websites, stock exchange’s website, data bases like Osiris, Bloomberg or Sage etc or you can just ask the mighty Google and search results will bring many options.

However, your starting point should be the Annual Reports of the company. Annual Reports are a document which includes not only the Financial Statements but also include statements from companies’ executives giving wealth of information concerning all aspects of the business e.g., strategy, corporate governance, management, marketing etc. These reports highlight the important financial and non-financial data about the company including Key Performance Indicators (KPI) and Corporate Social Responsibility (CSR Reporting).

A good analysis is a one which doesn’t only analyse the data but also investigates the reasoning behind the results you have calculated and data fluctuations. You should be aware of political, economic, social, technical, legal and environmental (PESTLE) factors affecting the company(ies) being analysed and the industry in which it operates. Therefore, accessing all the resources which can provide information related to your company is critical to writing a good analysis.

Annual Reports also contain another very important report which is called “Auditor’s Report”. This report certifies that the financial statements (not the whole annual reports) are “true and fair” which means that the figures are not being presented in way which will deceive the readers. This report protects (at least it tries to) the stakeholders from any deception which might be intended by the writers of these reports. The writers are the management of the company who may not be the owner of the business. Hence the data given in financial statement included in annual reports have a degree of reliability in there which may not be the case if data is being taken from another source.

Another reason for choosing annual reports as your starting point is that these statements are easily available to general public (like yourself) who use this document for various reasons.

How to find annual reports?

If you type on Google what I have done (please see the picture below) and press enter, you should get the same results. You should be looking for a PDF file. You will need to download the PDF file and use it as you read through this book. However, initially you should scroll through these annual reports to get an idea about it contents at the beginning. No need to read at the moment, we will do it step by step 😊.

You should also download the annual reports of your company or companies using the same process. Please note that this method to obtain annual reports would only work for public limited companies. Private limited companies (ASDA is an example which is privately owned by Wal Mart Inc) usually do not make their annual report available to the general public.

For some companies, it may be more challenging to find their financial statements than the above search and you may have to scroll down a bit more to get a PDF version of the annual reports for your company. But if you are more specific in your search, it should not be too difficult.

If you cannot find annual reports for the current or previous year despite all the efforts, the chances are the annual reports have not been published yet even though the year end date (“Financial Statements”) has passed. This is due to the time it is needed to prepare these statements. For example, Year End date for Super Dry is 27 April 2019. However, the publishing date of the annual report in the search results is 15 August 2019. That’s about 3.5 months after the year end date although for larger companies it could take more time. If this is the case, then you should choose another company for which there are latest annual reports are available. You should never choose old annual reports as this affects the currency and relevance of your analysis which will reduce your chances of getting good marks. Latest financial statements are always recommended so if you are doing this work in 2020, search for annual reports for 2020, if those are not published yet then use 2019 annual reports. Another point you should note that companies listed on stock exchanges publish their financial results every quarter. Do not use a quarterly report by looking into the year-end date for the company.

A word of caution before we start digging into these annual reports especially for those who have limited or no knowledge on accounting and finance. These annual reports contain information from all aspects of business with a lot of data and information. As financial analysis mainly deals with data prepared by accountants, only a qualified accountant can understand it fully. It is important to remember that to carry out a financial analysis, you only need to understand parts of annual reports and financial statements. If you would start looking at every single piece of information, you will be digging a much bigger hole for yourself which is not needed and would only confuse you further. One of the characteristics of a good analyst is to extract the relevant information and ignore the rest. 

This article is written by Raja Mizan who is a senior lecturer in accounting & finance in a UK university. He is an ACCA member and also runs his own accountancy practice RMR Accountants & Business Advisors.

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