An annual report summarizes the performance of a business over the past fiscal year. It includes an introduction section providing an overview of the business activities for the year. The primary components are the income statement, balance sheet, and statement of cash flows. The income statement shows profits or losses, the balance sheet summarizes assets and liabilities to show ability to pay debts, and the statement of cash flows captures cash inflows and outflows from operations, investing, and financing activities. Notes to the financial statements further explain figures in the statements.

1. What Are the Primary Components
of an Annual Report?
ANNUAL REPORT

2. Annual report

3. Definition
• An annual report summarizes the performance of
a business for 12 months -- essentially the fiscal
year of the business. Also known as the financial
year, the fiscal year does not necessarily coincide
with the calendar year, as it can begin and end at
any time of the year depending on the business's
desired schedule. Whether the business observes
generally accepted accounting principles or
international financial reporting standards, an
annual report should summarize the profits,
assets, liabilities, equity position and cash flows
of a business.

4. • Introduction Section
• An annual report begins with an introduction section
providing brief descriptions of the business activities
for the year. Such an overview helps the business
connect with users of the financial report, which might
include shareholders, financial analysts, creditors,
government agencies and prospective investors.
Information outlined in the introductory section
includes a review of operating and financial results,
summaries of historical trends and nonfinancial
information. Bigger businesses might include a
chairman’s statement and director’s report in the
introductory section.

5. • Income Statement
• The income statement is a critical component of an annual
financial report. It presents detailed breakdown of the
profits or losses generated by a business during a financial
year. The first subsection of the income statement shows
the gross profit or loss -- that is, the difference between
total revenues and cost of goods sold. Cost of goods sold is
the opening stock plus net purchases minus the closing
stock. The second subsection of the income statement
shows the net profit or loss of a business. Net profit or loss
is calculated by subtracting total operational costs from the
gross profit or loss. Operational costs of a business may
comprise items such as salaries, taxes, stationery and
utilities.

6. • Balance Sheet
• A balance sheet is a section of an annual financial report that
portrays the ability of a business to honor debt obligations. It
essentially summarizes the assets and liabilities of a business
enterprise. The preparation of a balance sheet begins with
recording of noncurrent assets such as equipment, furniture and
computers. It is followed by the current assets section that
comprises items like inventory, accounts receivable and cash.
Noncurrent liabilities, such as debt financing, come next with
current liabilities appearing soon after. Current liabilities are short-
term business obligations such as trade payables and bank
overdrafts. The balance sheet also summarizes the equity position -
- that is, a breakdown of the share capital and retained earnings of
a business entity.

7. • Statement of Cash Flows
• Statement of cash flows is the component of a financial
statement that summarizes the inward and outward
movement of cash in a business. This section captures the
inflows and outflows of money generated from operations,
investments and financing activities. Cash flows from
operations focus on the day-to-day activities such as sales
and inventory purchases. Investment cash flows relate to
income and expenses generated by long-term projects or
programs. The financing cash flows segment tracks changes
in the capital composition of the business as occasioned by
the sale of shares and distribution of dividends, as well as
borrowing and repayment of debt.

8. • Notes to Financial Statements
• Notes to the financial statements elaborate on
the facts and figures in the financial
statements to enhance clarity. This section
clarifies accounting policies and uncertainties
that may cloud a business's assets and
liabilities.

11. ANY QUESTION