3 Purposes of the Annual Report - dummies

3 Purposes of the Annual Report

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

There are three distinct goals of the annual report for a public corporation: to promote the company, to display its financial performance and goals, and to meet regulatory requirements.

Something to keep in mind: Going forward, large public corporations will undoubtedly turn more and more toward electronic media to distribute their annual reports. Doing so is a cost-saver and demonstrates a corporation’s commitment to using resources wisely.

Serving a marketing and PR function

A substantial portion of a corporate annual report is devoted to the company’s bragging about what it has accomplished during the preceding year and where it expects to go in the coming year. The language can be full of hyperbole and puffery. The purpose of this marketing and public relations material is to keep existing shareholders pumped up about the wisdom of their investment and to attract new shareholders to the fold.

Stating financial performance and goals

Less flashy but of decidedly more interest to serious investors are the sections addressing the corporation’s financial performance in the past year. The information in these sections indicates how closely the company came to hitting projected revenue figures. Additionally, the company addresses how it intends to improve financial performance going forward.

Here are some examples of financial goals:

  • Increasing revenue by expanding into global markets.

  • Becoming regarded as a premier employer.

  • Managing operations for the greatest effectiveness.

  • Increasing brand awareness. Brand awareness is a fancy way of saying the company wants to make sure consumers recognize the company and its signature products. The purpose of brand awareness is also tied to making the company’s products preferred over similar ones marketed by the competition.

Meeting regulatory requirements

Most large companies would produce an annual report even if the U.S. government didn’t require them to. That’s because an annual report is such a crucial marketing and PR tool. However, because publicly traded companies must adhere to stringent regulatory requirements, not issuing an annual report isn’t an option.

Companies that issue publicly traded securities — as well as companies that meet certain other criteria — have to file annual reports with the U.S. Securities and Exchange Commission (SEC). The specific report required by the SEC is called Form 10-K.

To avoid having to create two separate types of annual reports, some companies include in their reports to shareholders all the information that the SEC requires be included in Form 10-K.