Investors must carefully analyze the financial health and performance of any business they consider funding. To do this, they turn to several financial statements that offer glimpses into the organization's inner workings. Show
Few financial statements are more highly anticipated each year than a company’s annual report, which not only summarizes its performance for the preceding year but charts a course for the one ahead. With this in mind, knowing how to prepare an annual report is essential for anyone interested in a leadership position. Whether you’re an aspiring entrepreneur, functional lead, or member of your organization’s C-suite, learning how to prepare an annual report can help advance your career. Here’s a look at what an annual report is, its key components, and steps you should follow to create one. Free E-Book: A Manager's Guide to Finance & Accounting Access your free e-book today. DOWNLOAD NOWWhat Is An Annual Report?An annual report is a document that describes a company’s financial condition and business operations for the previous year. Any publicly traded business is required by law to prepare and publish an annual report, which helps current and potential investors decide whether to provide funding. Businesses not publicly traded can still prepare an annual report if they have private investors who must be apprised of their performance or are in the process of securing private funding. Components of an Annual ReportAn annual report typically consists of the following documents or sections:
Usually, an annual report is split into two halves. The first half contains the company’s narrative in the form of the letters to shareholders, management’s discussion and analysis, general corporate information, and operating highlights—all of which tell a story about how the company performed and worked toward its goals. The second half of the report strips out narrative components and presents data, which investors are encouraged to analyze to draw conclusions about the company. How to Prepare an Annual Report1. Compile the Business ProfileThe business profile is the section of the annual report where you summarize key information about your business. It typically includes information about:
This section is also sometimes referred to as the general business information section of the annual report. When writing this section, remember your goals: to quickly provide new, current, or potential investors the information needed to understand your business and industry. 2. Generate Key Financial StatementsThe purpose of the annual report is to provide data and analysis regarding your company’s operations and financial performance. As such, the financial statements it contains are essential. Important financial statements include your company’s:
While you can compile the report’s other sections before generating financial statements, it’s best to avoid doing so because your letters to shareholders, management’s discussion and analysis, and other narrative elements should be backed by financial data. Not creating financial statements first makes it possible to tell an inaccurate or incomplete story you’ll later need to correct.  3. Select Operational and Financial HighlightsAfter generating financial statements, select highlights for your report’s narrative elements. Incorporate a mix of operational and financial highlights. Some examples include:
4. Write the Management Discussion and AnalysisWhile the financial statements included in the annual report allow investors and analysts to analyze your business, the management discussion and analysis section offers you and your team the opportunity to present an internal analysis of financial performance and statements. The MD&A section also typically contains information regarding key issues your company faces, such as compliance with laws or regulations, systems and controls recently put in place, and new or emerging risks. While the MD&A section is more subjective than financial statements, it must meet the standards set by the Financial Accounting Standards Board (FASB). This includes ensuring the MD&A is balanced, based on fact, and has both positive and negative information. 5. Write the Letter to ShareholdersThe final step is to write the letter to shareholders. This letter is drafted by the CEO, chairperson, or company owner and offers a high-level overview of the business’s operating activities and finances for the previous year. The letter to shareholders ultimately acts as the introduction to the entire annual report and is the first piece of information investors review. While each component of the annual report is essential, the letter to shareholders is one of the most important to get right. One of the Most Important Financial DocumentsThe annual report is one of the most crucial financial documents your company produces. While doing so is typically a team effort spanning multiple departments, knowing what goes into preparing one is a vital skill for aspiring business leaders and entrepreneurs. Do you want to take your career to the next level? Consider enrolling in Financial Accounting—one of three courses that comprise our Credential of Readiness (CORe) program—and discover how you can learn key financial topics that enable you to understand business performance and potential. Which of the following is true of the formal communication network?Which of the following is true of a formal communication network? It is identified as a bureaucratic system when employees rely on it entirely as a guide to behavior.
What is the act of sending a message?What is communication? Communication is the act of sending and receiving information. We communicate by various methods including speech and writing, using gestures (such as pointing), using pictures, and even using sign language.
What is the sharing of information that conforms to established rules?Formal communication is sharing of information that conforms to established rules. Formal communication typically takes place in letters, e-mails, presentations, or other messages that are planned and put into words. Informal communication is casual sharing of information with no customs or rules of etiquette involved.
Is the advantage an individual or an organization has due to its good reputation it Cannot be bought?Goodwill is the advantage an individual or an organization has due to its good reputation; it cannot be bought. It is the positive opinions that a business creates.
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