Why a Companys Annual Report is useful to Investors

A company’s annual report is very important. It is beneficial to both the company that is looking for prospective investors and to the investors who are looking for companies to put their money into. An annual report basically says everything about a certain company’s performance. It contains its performance for the past year and could provide a good insight and forecast on how will it do in the future.

Annual reports play a very significant role in investing and at some point, it can spell the difference between gaining investors and failing to get one. So what does financial reports really contain that makes it so useful to investors? Here are some of the things that are present in annual reports.

1.) Earnings report. Investing is all about earning a profit. No investor will put their money to a certain company or investment if they are only to lose money. One way to look at an investment’s profitability is to look at its earnings. A company that posts stellar earnings for a year is most likely going to be a company that is going to do well in the succeeding years. One key in looking at earnings in annual reports is to compare it to other previous years. If the earnings are consistently going up, then it is a company that is worth investing in.

2.) Debt records. Annual reports record a company’s debt portfolio. Most companies have debt but a successful company is the one that manages their debt very well. One way to look at a company’s debt records is to compare it to its earnings. If a company’s earnings is more than its debt, then it is a profitable company. It is either a company that manages their debt well or they simply have superb products and services. A good earnings to debt ratio is 3:1 or the earnings must be at least three times its debt.

3.) List of projects. Annual reports also contains a certain company’s list of projects and activities for a certain year. Most companies also include their future plans in the list which gives prospective investors a good overview on where the company is probably heading in the next few years. The list of projects normally include the earnings in different projects and its performance. A company that has more projects and more plans is a company that is going to gain more investor confidence because it will provide multiple streams of gains. It is also a company that posts lesser risks because if there are more companies, the chances of losing is quite slim because if one or two projects fail, the others can compensate for it.

4.) Management. Reports always include the management team behind a certain company. The reputation of the people handling the company is very critical in gaining investor confidence. Most companies that surge up and achieve success are companies that are being backed by highly reputable people. The reputation of the management rubs off to the company thus if the management behind a company is good, it is very much expected that the company is going to be respected at a high regard as well.