Annual reports are useful tools for investors | Company

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Annual reports published by companies listed on the Jamaica Stock Exchange can be quite lavish in appearance and no doubt cost enormous sums to produce.

They say a lot about companies and are great PR tools, but they’re so much more than that.

Annual reports give very detailed historical information about a company and help the reader see the financial performance of the company.

They deal with the performance of a specific financial year. They show how much money businesses make and how, how much they spend and how funds are spent, how they generate and use cash, and show the financial strength of the business through the information they provide about assets and company liabilities.

It is a legal obligation for listed companies to publish their financial performance within a prescribed period after the end of the financial year, and also to publish interim reports on their performance each quarter.

Because full-year financial statements must be audited, annual reports take longer to publish than interim reports, which are unaudited and provide less information.

Earlier I described annual reports as public relations tools because they are used to show what they are doing. They often show the company at work at different levels of the community in vivid color, showcasing them as good corporate citizens. They also tend to show executives and different levels of staff as real people who care and are real and sometimes show aspects of company operations.

This side of companies is undoubtedly linked to their shareholders, who, nevertheless, are mainly concerned with how the companies they own can generate wealth for them by consistently making profits, thus causing an increase in the price of their shares and often paying dividends.

The annual report is a useful tool for the company to create intimacy with its shareholders through the various reports it contains.

The auditors’ report is prepared by a firm of qualified independent auditors and indicates whether the financial statements represent a “true and true view” of the company’s financial situation. The auditor’s unqualified opinion is essential because a qualified opinion may mean that the auditors are not satisfied that the company maintains appropriate accounting records, that there is disagreement about the extent of the disclosure in the accounts and there is uncertainty, for example, about the likely outcome of a major dispute.

The balance sheet shows the financial strength of a business as of a specific date, usually the end of the fiscal year. It shows the company’s long-term and short-term assets on one side and the company’s short-term and long-term liabilities on the other.

Assets are what the business owns and what is owed to it. Liabilities are what the business owes. It is important that the assets are greater than the liabilities, and with a good margin. It is also important that current assets are greater than current liabilities, as this measures its liquidity, i.e. its ability to meet its short-term obligations.

Overall, assets should be greater than liabilities, as it is an indication of the company’s solvency, i.e. its ability to meet its debts and financial obligations. long-term.

The difference between assets and liabilities is the shareholder’s equity, which represents the value of the owners’ or shareholders’ interest in the business. The company’s assets are thus financed by equity and borrowed funds, and it is important that the level of debt is reasonable in relation to equity.

The profit and loss account, also known as the income statement or income statement, deals with what interests many investors – the profits of the company. It shows how much revenue the business earns and from what sources, the expenses incurred to generate the revenue and the difference – profit, if revenue exceeds expenses, or loss, if expenses exceed revenue.

The statement of retained earnings shows the profits that the company retains in the business after distributing part of its profits to the shareholders in the form of dividends. To the extent that the company earns a profit over the years and does not distribute it all in the form of dividends, retained earnings, or accumulated profits, increase.

The notes and supplementary schedules are very important for a good understanding of the company’s financial statements and operations. They include a description of the business and what it does, explain the elements of the financial statements, and disclose the risks and uncertainties affecting the business.

Financial statements are not perfect because there is a risk of human error and they may not disclose things important to making investment decisions.

Investors shouldn’t be intimidated – and some financial statements look complicated. As co-owners, they need to take the time, little by little, to understand, even at the most basic level, how the businesses are doing.

– Oran A. Hall, author of Understanding Investments and lead author of The Personal Financial Planning Handbook, offers personal financial planning advice and guidance. [email protected]

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