The fact that the report is presented to give a positive impression, is not in any way meant to hide facts from the shareholders or the public. It is simply the way the report is presented – by highlighting the positive facts and not amplifying the negatives. One should always remember this while reading the annual reports.

The presentation of the report such as its color, layout, pictures, and graphs, etc. need not be given any importance. It is the content that’s important. One must look for Information including figures, ratios, and notes, etc., and anyone who can make a meaningful sense of what is presented is right on track.

Must read in an annual report.

While it is not practical, it is also not necessary to read all the pages of the report. One would usually find the front pages of the report colorful presenting an overview of the company’s objective and how well they have been met.

It will also probably explain the strategies of the company, its products, and how they are positioned concerning their competitors. The chairman’s speech at the AGM or message to shareholders is found on these pages.

The pages at the back of the annual report usually contain financial information of the company. The real substance to be found in an annual report is the financial statements and annexures to accounts. One must surely read the income statements, balance sheet, together with auditor’s notes and comments on the accounts.

The Director’s report will tell us about the operational and segment-wise performance of the company and the important initiatives taken during the year. It will tell us about its achievements, milestones, awards received, and also provide a financial snapshot of the previous year.

The report gives details about the industry and factors that affect the prospect of the company. These include their strength and opportunities that can be exploited, the threats, competitors, and how well the company is positioned to tackle the same. The impact due to changes in policies of the management or the government is also disclosed.

Other information found in the report.

A careful study of the financial statements and notes, not only allows the investor to understand the numbers but also about the assumptions and accounting practices that went into preparing them. To do this, we have to read the notes that are found in the appendix to the balance sheet and P&L account.

The remuneration of the directors and managerial personnel and transactions with associate concerns of the company can also be found in the notes.

Notes are divided into two sections.

The first section of the notes gives a description of the basis of accounting and its presentation. Where ever earnings of foreign exchange are involved the estimate, the basis of conversion is given in brief. Other information contained in the notes includes the cash position and the collateral offered to lending institutions and the investments in associate concerns.

The second section of the notes provides details of the assets and liabilities position. Here we find that the details of the dealings of the company with associates and group companies, an important source of information.

In the case of manufacturing companies, the production figures are important. The production figures concerning its installed capacity will give an idea about the efficiency of the company’s operation. This information would be important if the company is planning for an expansion.

In the case of newly listed companies, how the IPO proceeds were utilized is disclosed in the annual report.

An analysis of the cash flow statement can reveal the actual flow of cash. So, while studying the annual report on has to look beyond figures.