The most important purpose of a company's annual report is to provide shareholders and potential investors with information on how the company has been performing and how it expects to grow in the future.
The Securities and Exchange Commission (SEC) requires that all corporations file a Form 10-K at the end of each fiscal year. Corporations typically include their 10-K in a comprehensive report that expands on the financial information contained in the 10-K.
Most company annual reports include the following sections: • Letter from the CEO • Overview of the Company’s Products and Services • Management Discussion and Analysis • Financial Statements • Statement from the Auditing Firm
Most corporations consider their annual reports to be more than just updates for shareholders: They also view them as marketing tools for consumers as well as investors. Therefore, most annual reports are professionally produced, containing color, graphics, easy-to-read headings and sections, and easy-to-understand charts and graphs.
Savvy investors know not to believe everything they read in a company's annual report, as much information may be presented in ways that hide shortcomings and exaggerate successes. (Those who read Enron's last company annual report may have found nothing to worry about.)
The SEC was established following the stock market crash of 1929. The Securities Exchange Act of 1934 was passed to allay consumer fears and encourage stock investing. The company annual report is one result of this push for corporate accountability.