What Is the Purpose of a Company's Annual Report?

The main reason why companies release annual reports is to relay information to shareholders about the company's finances during the year. In most countries, annual reports are mandatory.

Annual reports are designed to be comprehensive; in addition to outlining the company's expenditures and income, annual reports list information about accounting policy and top-level philosophy. Typically, annual reports contain statements from the chairperson and other major figures within the company. If the company uses nonstandard account practices for internal purposes, the annual report likely contains information tabulated according to certain regulations. Large companies typically produce more frequent reports, which may not conform to annual report standards. Companies listed on stock markets, in particular, are likely required to release more frequent reports.

Companies also use annual reports to put a spin on the year's activities. If the company failed to meet goals, the annual report is likely to explain why. Similarly, a successful year might spur the report's authors to explain how the company expects to maintain or increase this success. Annual reports are often sent to entities that express interest in investing in the company, and annual reports are typically one of the first items requested. By presenting information in as positive a light as possible, the authors hope to encourage potential investors.