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Annual report

SEC regulations require that each publicly traded company issue an annual report to shareholders. The annual report contains certain minimal financial statements of the company for its fiscal year. These are the numbers that go into calculation of the earnings per share and the book value.

Expanded Definition

The annual report also usually contains an analysis of the results of the company by its executives. It often lists the names of officers and the board of directors. An auditor's report typically certifies that the books have been examined and found to comply with the requirements of the Financial Accounting Standards Board (FASB) and generally accepted accounting principles (GAAP). Certification by the company officers of compliance with the latest SEC requirements is also included.

Although some reports can be quite short, some companies undertake optional descriptions of the company, its divisions, operations, new investments, and sometimes extensive photography of products and facilities. Warren Buffett's Berkshire Hathaway is famous for its instructive content on recent developments in business. His annual report is a virtual textbook.

Annual report format can vary quite widely, but the SEC also requires an annual report be filed with it. That report, known as the 10-K report, has a more rigorous format and often includes material not necessarily found in the annual report to shareholders. (Quarterly reports called the 10-Q reports are also issued.) Some companies now include the 10-K report in their annual report.

The annual report is routinely mailed to all shareholders of record. One may also be obtained by request from the company headquarters. Some are now available on company websites. 10K reports are usually offered to all shareholders on request. Most are now available on line from the SEC's Edgar website.

Books such as Finance for the Non-Financial Manager include sections on how to read an annual report. Beginning investors often are most interested in the earnings and planned activities of the company, but professionals use various ratios from the financial reports to gauge the financial health of the company.

The most common advice, especially after the Enron debacle, is to read the footnotes to the financial statements carefully. They often include hints that can indicate major risks to the company.

Companies are required to report significant events to their shareholders in their annual reports, and in their financial statements. A significant event is often defined as 1% of sales. This means that in large corporations sizable events can go unreported, but smaller companies are required to provide more detailed information.

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