WHY SHOULD YOU READ
an annual report?
As an investor, an annual report is one of the best sources of information for
long term investments. It’s of little use for day-traders, but for other investors
this report provides invaluable information about the company, its
performance and future prospects.
WHAT YOU WILL LEARN IN
WHAT YOU WILL
How to make sense of big annual
Which parts of annual reports are
How to make sense of financial
Anything else I don’t know.
Year in review
• Financial statements
An annual report generally
contains the items mentioned on
the right. Not all reports will
contain all these items, and they
will not necessarily be in the same
order. Some companies might also
add additional sections as per
Cash flow statement
Graphs and charts
• Appendices and references
BUT MANY ANNUAL REPORTS
are more than 100 pages…
HOW SHOULD YOU READ
an annual report?
There’s no right or wrong way to read any annual report. However, the
steps outlined in the coming slides provide a quick way for investors to
determine whether the company is worth investing in.
1. The Design
consistency with the company’s
Admire the design. You will notice how it aligns well with the colors
and/or patterns used in the company’s branding. Airtel’s report uses red
heavily throughout the report.
2. The Cover
company name and period of
Admire the cover for a moment. It’s job is a bit more than just sitting there
looking attractive – it tells you the company name and, more importantly,
the period of the report.
3. About the Company
know what the company does
before you think about investing.
Dive into the report and start by figuring out what exactly the company
does. Also see if it has entered any new businesses or markets in the past
year or is looking to enter them soon. This information can be gleaned
from the corporate message or letters.
4. Auditor’s Report
have the independent auditors
given it a clean bill of health?
Nearly all reports contain this. Just glance at this quickly to ensure that the
data provided in the report has been validated.
5. Financial Statements
historical and present performance will
give you an idea about future prospects.
Find out how the company has been performing over the past few years. Is
it making profits? How much liability does it have? Calculate the
6. Management Discussion
statements contain only numbers;
that’s their biggest weakness.
The management discussion will provide you information about what the
company has been up to, and might also provide more information behind
some of the numbers in the financial data. Any new partnerships,
ventures, impact of regulatory or competitive environment, etc. will be
focus on unusual risks so that
a big loss doesn’t shock you.
Ignore the general risks like “regulatory changes might impact
profitability.” Focus on checking for company-specific risks that might
create uncertainty about its future.
If you haven’t understood something,
there is likely to be a clarification
somewhere in the document.
Appendices will generally help you out with technical or financial jargon
used in the report. Ensure you have understood everything before you
make your decision about the company.
AND THAT’S HOW YOU
FINISH AN ANNUAL REPORT
while noobs are still admiring the cover
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