contents of an annual report
Discuss the following scenario: Staff members from the marketing department of your firm are doing a splendid job selling products to customers. Many of the customers are so pleased that they are also buying shares in the company’s stock, which means that they receive a copy of the firm’s annual report. Unfortunately, questions sometimes arise that the marketing staff members are woefully inadequate at answering. Technical questions about the firm’s financial condition and performance are referred to the chief financial officer, but the director of marketing has asked you to write a memo in which you explain the key elements in an annual report so that marketing representatives are better prepared to respond to questions of a more general nature.
For your initial post, write a clear, concise memo (no more than 250 words) that describes the contents of an annual report so marketing personnel can understand the basic requirements of an annual report. Reference this week’s readings and lecture to help organize and explain your thoughts. In addition, answer the following questions:
- Do you think all marketing staff members should be equipped to speak with the public about the firm’s financial matters?
- What are some of the benefits of improving employee financial literacy?
What are Financial Statements and How can we use them?
Financial statements are used by managers and executives for various purposes beyond improving the financial performance of a company. Financial statements give a clear picture of how the company has been faring over a specified period of time, which managers use to identify trends and make informed decisions on how to improve a company’s performance (Thomson, 2013). Usually, managers can use two sorts of financial reports, namely:
- External financial reports prepared and availed to various members of the general public, such as bankers, investors, suppliers and vendors. They should be prepared in accordance to laid-down accounting guidelines and should be filed with the Securities Exchange Commission.
- Internal financial statements, on the other hand, are prepared and confidentially used internally by managers.
The commonly used sections of financial statements include the balance sheet, which shows the financial position of an organization, and the income statement, which has the purpose of providing an organization’s revenues and expenses. The cash flow statement depicts the amount of cash flowing into and out of the business. For the incorporated business organizations, a statement of shareholders’ equity is included in the company’s annual and it details owner’s claim on the company’s assets.
Internal reports, unlike external ones, are accessible only by particular employees because of their confidential nature. These reports contain what is private to the company, such as cost of goods purchased, product sales, and customer summary, which cannot be availed to competitors. Since internal reports are used internally, they do not have to follow strict rules (Thomson, 2013).
Company financial statements are read by various people for various reasons, among them are:
- To determine the financial status of a company, and
- To make decisions on how to improve a company’s performance
Users of financial reports therefore include managers and executives, employees, creditors, vendors, investors, government agencies, competitors, analysts, and financial reporters, all using them for different purposes. Unlike public companies that have to trade their stocks in open markets, private companies do not disclose much of their financial performance information to the public. This helps them take advantage of three benefits: confidentiality, increased flexibility, and greater financial freedom. However, such companies are not able to raise additional cash since they are restricted on issuing stock. Financial reports can be found in such places as SEC’s Electronic Data Gathering, Analysis, and Retrieved, companies’ websites, and financial news websites.
Annual reports have to be presented to shareholders prior to annual meetings, as required by the Securities Act of 1933. As a requirement, companies should post annual reports in addition to proxy materials and other issues which have to be voted on at the meeting. An annual report includes various sections, although it does not follow a fixed format. The following sections are mostly found in an annual report:
- Highlights
- Letter from the President or CEO
- Auditors’ Report
- Management’s Discussion and Analysis (MD&A)
- Management’s Discussion of Financial Responsibility
- Financial Statements
- Notes to the Financial Statements
- Other Information
A Form 10-K is presented to the SEC and serves the purpose of providing comprehensive details on the company and its financial position. Usually, the Form 10-K is composed of four key parts: business operations, directors and executives information, financial data, and additional audits. All companies’ financial statements must conform to the GAAPS, a collection of principles applied to ensure that financial statements are accurate and fair.
Forbes School of Business Faculty
Reference:
Thomson, J. (2013). Mind the GAAP: Why private companies should embrace one reporting standard. Forbes. Retrieved from http://www.forbes.com/sites/jeffthomson/2013/04/30…
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