An annual financial report essentially shows how well a company fared in the previous year and where it stands financially at the end of that fiscal year. Companies use financial reporting to show things such as their income, cash flow, expenses, debts and assets. Stockholders use annual financial reporting to gauge how well a company will perform in the future.
An income statement, or earnings statement, on an annual financial report shows how much profit a company made that year. Depending on the type of company, the income statement on an annual financial report might include information such as the amount of sales a company made and the cost of making those sales. The income statement also includes the operating expenses a company had. To determine its total profit for the year, the company will subtract the cost of each sale and its operating expenses from its total sales income.
The cash flow statement on financial reports details how the company handles its expenses. It also shows how a company plans to grow financially in the future. This section of an annual financial report has three sections: operations, financing and investing. Each section includes detailed information on how the company increased or decreased its revenue for the year.
On the cash flow statement, the operations section shows how a company earned income. The financing section shows how a company spent that income, and the investing section shows future growth. A cash flow statement can include information on a company’s earnings and net cash for the reporting period, income the company made from selling stock or losses the company took from paying out dividends and repurchasing its own stock.
Financial investors can use the balance sheet of an annual financial report to determine how the company might fare in the future. The balance sheet compares what assets a company has with what the company owes financially. The company might list any assets it has, such as any income it received. It also can list real estate or equipment that it owns outright.
The balance sheet on an annual financial report will also include any financial liabilities the company has. The company will likely show its accounts payable, or the amount of money it pays to employees and vendors throughout the year. Any debts that the company owes will also be listed. Comparing these liabilities to the company’s total assets helps an investor decide how stable the company will be in the future.