What is an Annual Report?

The annual report is a publication issued to a company's shareholders, creditors, and regulatory organizations following the end of its fiscal year. The report typically contains at least an income statement, balance sheet, statement of cash flows, and accompanying footnotes. It may also contain a letter to shareholders, management comments, an audit report, and various supporting schedules that may be required by regulatory organizations. This document used to be a major product of the investor relations department, but it has declined in importance over time.

Advantages of an Annual Report

There are several advantages to providing investors with an annual report, which are as follows:

Builds trust. Issuing an annual report demonstrating openness about financial performance, operations, and strategy reassures investors, customers, employees, and regulatory bodies.
Complies with regulations. Publicly traded companies are often required by law to produce annual reports, ensuring compliance with legal standards.
Enhances investor relations. Annual reports provide critical data that help existing and potential investors assess the company's financial health, performance, and growth potential.
Promotes the company. Companies can use annual reports to communicate their mission, vision, and values, enhancing brand image.
Engages stakeholders. Employees gain insights into the company’s overall performance and goals, fostering a sense of ownership and motivation. In addition, customers and partners see the company's commitment to ethical practices and sustainable growth.
Attracts talent. A polished report with clear achievements can attract top talent by showcasing a company’s culture and success.
Showcases responsibility. Highlights corporate social responsibility (CSR) efforts, appealing to socially-conscious audiences.

By providing a comprehensive summary of a company’s financial health, achievements, and future direction, an annual report serves as a key communication tool that supports growth, fosters relationships, and enhances credibility.

The Difference Between an Annual Report and a Wrap Report

A less expensive annual report is the wrap report, which is a public company's Form 10-K with an annual report cover wrapped around it. This approach is used when a public company does not find it necessary to expend funds on a more expensive annual report. Wrap reports are most commonly issued by smaller public companies that cannot afford a more full-scale production.