The Financial Analysis Report of a Company or Annual report of a company is a financial document published by the Company at the end of the Financial year on 31st March. The annual reports are made available to the Company's Shareholders or potential investors.
They can be found directly on their official website in PDF form, or you may ask the Company now to provide you with a hard copy. The Financial Analysis Report Of A Company should be made very carefully as any misinterpretation can be used against the Company.
The annual report of the Company includes many sections, which can avail you beneficial information about the financial strength of the Company. We must look into the matters that a company wants to convey to us. There is no need to read everything written in the Annual report, but yes, there are some sections that you should not skip.
For better understanding, you may download the annual report of some companies for learning purposes. You must also keep in mind that no two reports will be the same. It depends on the management what they want to publish first and last.
But there are following major sections, which you should know while making a Financial Analysis Report of A Company.
● Financial Highlights
● The Management statement
● Discussions and analysis
● 10 Year Financial Highlights
● Corporate or Company information
● Director’s report
● Corporate governance report
● Financial section and Important Notice.
Financial Highlights include the bird's eye view of the Company's financial highlights for the previous year. The data can be found in the form of graphs, and charts and can be of many years for comparison purposes. Various types of Ratios can be calculated using these numbers.
The management Statement is yet another essential feature. This section gives an idea of what the views and opinions of the top management towards their business are. How was their last financial year? What challenges might they have faced? Are there any achievements or Milestone achieved by them? Various such factors can be known from this section.
You can get an idea of what the Chairman has to say about his business, how transparent he is with his shareholders and stakeholders, and also how true and honest he is. Once, the director in his interview said that they had seen 10% growth in the business this year while actually, the growth was 4.5%; so, we might assume that either he has no idea of ground reality or he lied to get more investors. Some companies also include the overall trend in their industries and their national and international economic contribution.
Financial statements are the key components of annual reports, and they are majorly into three sections.
The Profit and loss statement.
The balance sheet
Cash flow statement of the Company.
The profit and loss, as the name suggests shows how and what profit the Company has made and what are the losses incurred by the Company in the previous financial year.
Looking at the balance sheet, we can judge whether or not it has become stronger than the previous years or is running in loss.
The Cash flow statement indicates the flow of cash in the Company; it shows whether the business is generating cash or using the cash. To get accurate details on this, compare the Income statement with the cash flow statement and check for any mismatches.
Steady and appropriate cash flows in the business speak that the business is making some profit or generating cash. In contrast, significant fluctuations in the cash flow statement can indicate something is wrong inside.
Company Annual Report Analysis
From an investor's perspective, one should always look at a 10K filing first. The essential components in the annual 10K filing are as below:
Item-1 Business information (every detail of that business and its operations)
Item-1A Risk Factors
Item-3 Legal proceedings
Item-6 Financial data
Item-7 Managements' discussion and analysis of the financial condition of the Company
These are some sections of the annual report which you must go through in order to get the exact scenario of the Company's performance and to get an accurate annual report analysis for any type of decision making.
Some experts suggest reading the 10k Filing. 10K filing is a longer version than the annual report and is submitted to SEC (Securities and Exchange Commission). It is a Black and white document. Some companies merge the 10K filing with their annual reports, while some submit them separately. Also, this becomes crucial when you have invested in a public firm or are planning to invest in one.
A potential investor should also look for the risk associated with investing; this risk can be any legal proceedings the Company might be facing. The Company should share this type of information under the heading Litigation.
There are various ways of doing a Company Annual Report Analysis. The annual reports can be said as an essential marketing tool, as an investor can find all the important details he should know before investing. Apart from this financial information, the investor is also suggested to look into non-financial aspects such as Company's management, the Company's competitors, employee satisfaction ratio, HR Policies, etc.
So we have seen How To Read The Annual Report Of A Company, How To Read Financial Statements Of A Company? what are the critical components in Company Annual Report Analysis. The Financial Analysis Report Of A Company can provide you with valuable insights such as:
● Is Company able to pay the debts?
● The profit is made, and the loss incurred
● How it has grown over the past
● Requirements to maintain survival or expand its business.
● Expenses against revenues.
All this information will help you decide on investing in that Company and predict the future return on your investments.
Finally, the best answer to How To Read Financial Statements Of A Company? If you don't need to be an accountant for this, you should only have a simple knowledge of numbers and an understanding of interpreting those numbers to get meaningful insights for your investment.