The Importance of an Annual Report

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Public companies have a statutory requirement to send an annual report to shareholders and file more detailed financial information on Form 10K with the Securities and Exchange Commission. Private companies can likewise use annual reports to provide important company and financial information to investors, customers, employees and the media.

Annual Report Contents

An annual report typically contains an overview of performance and prospects by the chief executive, financial data, results of a company’s operations, information on market conditions, new product plans, and research and development activities, according to the SEC.

Communicating with Investors

An annual report is an important element of a financial communication strategy to attract and retain investors. Regular communication updating investors on financial performance and company developments helps engage investors in the business and build more beneficial relationships, according to Forbes. Investors look for evidence of sound management when they review the financial data in the report. They can see whether sales are leveling off or the company has taken on too much debt. To protect their investment, they also want to know that a company is operating in a market that offers growth opportunities, according to Entrepreneur. The sections on market conditions, product plans, and research and development provide an indication of a company’s prospects

Building Customers' Confidence

Annual reports keep customers informed on the status of a company and help build confidence in it as a long-term supplier. Customers depend on their suppliers for reliable delivery of quality products and services that are essential to their own business. Customers review the information on operations, looking for evidence of investments in manufacturing or quality that will ensure continuity of supply. They also check the financial reports to ensure that the company has the stability and profitability to remain a viable supplier. Information on product plans or research and development activities help customers integrate a company’s future products with their own product development plans.

Attracting and Retaining Employees

Employees want to know that they are working for a progressive company that can offer them a secure future and strong job opportunities. The chief executive’s overview of performance and prospects, together with information on product plans and market conditions help to shape the perception of a company by employees and prospective employees.

Informing and Influencing the Media

Journalists monitor companies’ activities to report on financial and business performance, as well as their impact on local communities. Financial journalists pay particular attention to the company’s results and its prospects. Their views influence investors and affect a company’s ability to attract funds. Journalists at local newspapers and radio and TV stations look for success stories in the annual report, as well as reporting developments that affect the community, such as recruitment drives or expansion plans. Local journalists’ stories affect the company’s ability to recruit and gain public support for new developments

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About the Author

Based in the United Kingdom, Ian Linton has been a professional writer since 1990. His articles on marketing, technology and distance running have appeared in magazines such as “Marketing” and “Runner's World.” Linton has also authored more than 20 published books and is a copywriter for global companies. He holds a Bachelor of Arts in history and economics from Bristol University.

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  • Jose Luis Pelaez Inc/Blend Images/Getty Images