All firms are required to produce financial statements and yearly reports. Business analysts, financial analysts, financial analysts, and financial managers use financial reports and statements to acquire information about a company’s financial standing.
Both financial statements and annual reports provide helpful information on various economic subjects, including profitability, cash flow, and equity.
Because these two phrases are frequently encountered in the same context, many people confuse them. However, financial statements and annual reports are, in fact, not always the same thing.
Understanding financial statements and annual reports will help you study these documents more thoroughly and draw conclusions based on the information they give.
This article defines annual reports and financial statements and describes the fundamental distinctions between them.
What are Financial Statements, and What Do They Mean?
Financial statements are essentially records of all of a company’s financial activities. They are organised in such a way that everyone can understand them, notably investors, shareholders, and Singapore’s Accounting and Corporate Regulatory Authority (ACRA).
The primary goal of financial statements is to provide important information about a company’s financial situation, cash flow, and operational results. These pieces of data assist the relevant individuals and organisations in making informed judgments about the company’s resource allocation.
In most cases, financial statements are generated by the company’s management and audited by an audit firm or an outside, independent auditor.
The following are the four most typical forms of financial statements:
A balance sheet is a document that uses a precise framework to reflect a company’s current financial health by showing all of the company’s assets and liabilities, as well as the total amount of stock it owns. So, for example, you can figure out a company’s current net worth by looking at its balance sheet.
Cash Flow Statement
This sort of statement contains information on the amount of money a company has to spend, as well as how cash flows in and out of the company. Investors consider firms with a positive cash flow to be healthy since they are debt-free, better able to withstand revenue changes, and more willing to take risks.
Statement Depicting Changes in Equity
These statements detail any changes in equity that occur inside a company, such as when a new investment is made or when the company issues new stock to investors. For example, if a corporation distributes new shares worth 10% of the company, present shareholders’ equity must be reduced by 10%.
An income statement tracks sales, costs, and net profit to determine a company’s long-term success. In addition, investors frequently use income statements to judge whether or not they will get a return on their investment.
What Do Annual Reports Entail?
Annual reports are business documents that are distributed to a company’s shareholders to keep them informed about the company’s financial position and operations for the previous year. In addition, they give them more information about the firm, such as its corporate profile, management team, financial accounts, and so on.
After each fiscal year, annual reports are required to be published. In Singapore, all publicly traded firms must present annual reports to their shareholders at least 14 days before their annual general meeting.
In effect, a company’s annual report functions as its report card. Reading the annual report assists investors in making candid judgments about whether or not to continue holding the company’s shares.
In Singapore, an annual report normally has more than 15 sections. The following are the most significant sections to look for in an annual report:
Statement From the Chairman
This section investigates the causes behind the company’s success or failure. It also explains why the organisation made certain commercial or investment decisions in the preceding year.
The Management Team and Board of Directors
This section includes a list of all of the company’s top executives and details of their backgrounds.
Statements of Financial Position (Financial Statements)
This part of the document contains all the company’s financial transactions throughout the preceding year.
Report of the Auditor
The identity of the company’s auditor is revealed in this section. The fact that an audit firm has signed off on the company’s financial accounts attests to the accuracy of the data in the annual report.
NOTE: An annual report may be a broad phrase that encompasses a variety of reports. Financial statements are one example of this kind of report. In other words, every financial statement is an annual report, but not every yearly report is a financial statement.
An annual report is similar to a student’s report card, which is provided at the end of the year after completing all of his examinations. Financial statements, such as the income statement, profit and loss account, statement of changes in equity, and statement of cash flows, are included. However, in an annual report, these financial statements are only numbers that indicate the company’s financial health and profit or loss. In addition, a letter from the company’s CEO, details about new goods or services, future goals, and introductions of the board and management team are all included in the annual report. In short, it must consist of all information required by the Stock Exchange of Singapore from public corporations.
What is the Most Significant Distinction Between Financial Statements and Annual Reports?
Annual reports are far more comprehensive than financial statements. As a result, annual reports are regarded as more thorough than quarterly reports, even though their principal goal is the same – presenting helpful information about the firm to all of its owners.
The main goal of financial statements is to convey the company’s financial situation and performance in simple language and statistics. As a result, they are often straightforward to read, allowing shareholders and investors to grasp changes in the company’s financial status quickly.
On the other hand, annual reports are designed to give a larger picture of the organisation that includes more than simply financial data. They generally talk about new goods, new markets, emerging strategies, and the company’s overall future orientation. In other words, yearly reports cover more than just financial information.
Financial statements and annual reports may cover various parts of the business. Still, they are useful in assisting shareholders and investors in making appropriate decisions about the firm and its future course. As a result, to be successful, businesses must pay equal attention to both.
Get a trustworthy and knowledgeable accounting firm to manage your financial documents. This will ensure your reports are accurate and made available to all the stakeholders in time. So, outsource and save both time and money.