4 Things to Look for in Your Annual Reports

4 Things to Look for in Your Annual Reports

We all know it is very time-consuming to see the annual reports. These documents are hundreds of pages long, and honestly, sometimes you do not even know what to look for. But then again, you simply cannot ignore these annual reports as they can indicate severe issues in the client’s firm.

What should you do then? There is an opportunity cost for both. As these annual reports are so long, you might not be able to do your due diligence. While if you simply ignore these reports and just focus on current events, things might get a little out of hand. Some aspects of the client’s business might need adequate attention.

The answer is to go for the middle ground. You do not have to go through the entire document, nor do you need to ignore the pile of papers completely. Instead of wasting your time reading the whole thing or ignoring your annual reports completely, you can use accounting software like Quickbooks and Xero help you customize your annual reports Here are 4 things you need to look for in your annual reports.

Executive Summary

The executive summary summarizes the key points of the annual reports. It provides the reader with all the vital information, including the purpose and the major highlights of the report. This summary also describes any results, conclusions, or recommendations from the report. In easier words, it is a snapshot of the entire financial year. Thus it is a good amount of information the reader needs to understand without going through the entire report.

Auditor’s Report

An auditor’s report is a written document from the auditor. It contains information on whether the firm’s financial statements comply with generally accepted accounting principles (GAAP) or not. Audit reports are essential as they help maintain consistency, detect fraud, and find errors. Subsequently, good audit reports increase the investor’s confidence in the firm. In short, the auditor’s certified opinions provide an overview of the financial statements and help see whether the management’s activities are in line with the financial goals or not.

Cash, Debit Level, Revenue, Net Profit

Remember to check the cash on hand. It would help if you tried to have as much money on hand as possible. This can be done by delaying the account payables and by quickly receiving the accounts receivables. This way, the chances of having bad debts reduce. More so, you have a good amount of working capital on hand, which always helps operations run smoothly. Subsequently, it is vital to see your revenue and net profit. Revenue is the sales generated by selling your services or products to your target audience.

In comparison, net profit is the amount left after accounting for all the expenses and debts of the client’s business. While both these things are important, you can have a better picture of your firm’s financial position by looking at the net profit. This does not mean that you should not look at the revenue. However, because the firm’s liabilities and expenses are already accounted for when its profit is calculated, it gives a good snapshot of what is exactly happening in the business.

Proxy Statements

Proxy statements help make informed decisions that are brought up at an annual stockholder meeting. All in all, the proxy statements include information regarding the board of directors, their salaries, bonuses, and even the declarations made by the management of a firm. Now the question is, why should you look into the proxy statements? The proxy statements help the shareholders prepare for the meetings and help investors assess the performance of the management. For example, findings like certain employees getting paid more than others who deserve a raise can be seen easily through this statement. Such information can help you know where the client’s company is heading.

It is clear that going through these four sections can help you get better control rather than making decisions blindly and hoping things turn out as you wish they would. It is always better to analyze important information rather than tossing hundreds of pages into your trash can and expecting everything to turn out good.

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