What Is the Purpose of Company Annual Reports?

by Ellen Dowling; Updated September 26, 2017
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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.

Time Frame

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.

Features

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

Significance

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.

Warning

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.)

History

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.

References

  • SEC: Filings & Forms
  • "Annual Reports: Delivering Your Corporate Message to Stakeholders"; John Stittle; 2003

Resources

About the Author

Ellen Dowling, Ph.D., is a communication skills trainer and consultant based near Albuquerque, N.M. She has published many articles on training and development, and was formerly a writer for the Motley Fool. She is also a visiting professor at the University of Beijing, China, where she teaches business communication courses to international MBA students and Chinese business and government leaders.

Photo Credits

  • shironosov/iStock/Getty Images