An annual report is a publication of a company each year that includes a range of information for investors. This information includes the compensation of key employees, profit and loss, and the outlook for the company's future and past performance. All information provided by the company is included in the annual report, which is considered sacred. The company can sue for any incorrect data contained in the annual reports, whether it is intentional or not. The annual report is intended primarily for existing shareholders and potential investors. The annual report is the best source of information about a company than any third-party media.
All data in the annual reports are relevant to the March 31st of the most recent financial year. The annual report is usually released by companies in May. Large companies usually release their annual reports in June because they are a large document that takes a lot of time to compile. Information related to 2019-20 will be included in the 2020 annual report.
Investors of all types can access the annual report by visiting the company's website. The annual report can be accessed on the company's website by clicking the "Investors" section. In the section for investors, you will find a column called 'Financial and Reports’ or 'Financial Reports’. The annual report can be downloaded in PDF format from the reports section. You can also contact the company for a hard copy.
An annual report is a complete document that contains all information and data. Although the information in an annual report can be assumed to be accurate, it is important to pay attention to how it is presented. The annual report will not be lied by companies. However, they will highlight the positive and hide the negative under technical jargons. It is important to carefully read the annual reports and to distinguish meaningful information from marketing content. We will use the Eicher Motors Ltd annual report as an example to help us understand. The company produces the iconic Royal Enfield motorcycles, as well as commercial vehicles under the Eicher name. Link to the annual report: https://www.eicher.in/uploads/1563260440_eicher-motors-annual-report-2018-19.pdf
Although it is impossible to cover every single line in an annual reporting, you can get an idea of the main points. The style and content of annual reports can vary, and the interpretations they provide can be very different. You can improve your understanding of annual reports by studying them over time and comparing them with actual company performance. Let's start with the 2018-19 Eicher Motors annual report.
The annual report has been divided into five main categories and sub-sections by the company.
The corporate review is the first part of Eicher Motors' annual report. The financial highlights of consolidated operations are provided by the company. This means that it also includes sales and profits from subsidiary companies. While discussing financial statements, we will also discuss standalone and combined financials. Eicher Motors provided data for only two years. However, many companies provide performance highlights over 5-10 years. Although it isn't very relevant, you can still use it to analyze the company's performance over time.
You should investigate the cause of sudden falls or rises in profits during a given year. It is important to understand the context of information in an annual report. Without context, the data is meaningless. Without context, the data are meaningless. In one year, for example, the operating margin before Eicher Motors' share of profit from joint ventures has fallen by 220 basis points. The decline in margins of the motorcycle business is not due to the loss of share of joint ventures. The reason for the decrease in margin must be identified.
In this instance, the primary reason is the increase in the price of raw materials. You will see a sharp increase in materials used and employee benefits costs if you look at the company's standalone profit and loss statements. For a balanced perspective, you can compare the increase in input material costs with the contraction of margins at other Indian motorcycle manufacturers. While the margin is shown on page 3, the financial statement section explains why it is there on page 119. To understand an annual report, one must connect the dots.
Eicher Motors provides a quick overview of its financial performance. It also gives an overview of its dealership network, shareholding patterns, and the number of vehicles it has sold. This information can be useful for potential investors. It provides the company's consolidated financial situation and highlights. The highlights are not worth reading. More detailed information is available in the financial statement section.
Next comes the "message for shareholders", also known by the "management statement". This section provides a glimpse into the heads of those in charge of the company. The chairman or managing director generally talks about the performance and challenges of the company. They also discuss their plans to overcome them. The management statement can provide valuable insight into the future direction of the company, so it is worth reading. The management statement can be used to assess the quality of management. Compare the performance of the previous statements to determine if the manager is blustery or grounded.
Siddhartha Lal, Eicher Motors' managing director, talks about the company's capacity increase. Eicher Motors will increase its commercial vehicle production capacity by 40,000 units with the opening of a new facility at Bhopal. The company also increased its production capacity for motorcycles. The company continues to add capacity despite a slowdown within the wider commercial vehicle and premium bike segments. Lal believes that the slowdown will be temporary and that there will be a surge of demand in the future. The company's future sales data and capacity utilization will be important to monitor.
Management discussion and analysis are generally followed by the management statement. This section is the most important in an annual report. The management discussion section is usually opened with a brief overview of macroeconomic factors that affect the company. Global factors will be discussed if the company is active in international markets. Eicher Motors' management discusses the slowdown in two-wheeler sales in the second half 2018-19. You should keep an eye out for the business review, new product launches, and store additions. The company will provide this information and also outline the steps it is taking in order to expand its reach into new markets.
The company will talk about the various problems it faces and the actions it is taking to address them. The management review's later sections shift the focus from general trends to the specific actions taken by the company. To get a clear picture of the company's future, read the management analysis and discussion.
Negative developments will often be hidden by companies in management discussions and analyses. You can easily spot materially negative developments if you have a keen eye. Eicher Motors is one example of such a development. Workers strike and production ceases.
A number of reports are usually produced following the management discussion, such as the corporate governance report and business responsibility report. These reports include information about subsidiaries and key managers, as well as details on the company's CSR activities. These reports may also include details on related party transactions. These reports may contain information about related party transactions. It is important to consider the remuneration received by key managers. Investors should not be surprised by a steady rise in the remuneration for officials, even if there is a similar increase in sales or profits.
Three statements are included in the financial statements of the company.
In the section 'financial statement', you will see the words consolidated or standalone several times. It is better to be clear about what consolidated and separate means. Multinational corporations often have multiple subsidiaries. Multiple subsidiaries can have different reasons, ranging from acquisitions and taxes to corporate governance rules.
Eicher Motors has several subsidiaries, including Royal Enfield, VE Commercial Vehicles and Royal Enfield Thailand Ltd. Step-down subsidiaries are those that have subsidiaries of subsidiary companies. Eicher Motors has several step-down subsidiaries, including Royal Enfield Canada Ltd and VECV Lanka Private Ltd.
Eicher Motors has divided its business into two distinct units via its subsidiaries. Royal Enfield is the home of its motorcycle operations, while VE Commercial Vehicles houses commercial vehicle operations. Eicher Motors listed VECV, the company's commercial vehicle arm, as a subsidiary because of its majority shareholding.
The financial performance of subsidiary companies is included in the consolidated financials. Eicher Motors' consolidated financial highlights includes the financials of its subsidiaries, such as VECV and Royal Enfield America. To get a better understanding of a company's business, you will need to consider its consolidated financials. If you are looking for the primary or domestic business of a company, consider the standalone statement.
There are many aspects to how you evaluate the standalone and consolidated figures of a company. Eicher Motors' primary business is selling Royal Enfield motorcycles. Imagine a situation in which Royal Enfield makes a profit only of Rs 200 crore, while its subsidiaries make a profit just of Rs 1000. But will the consolidated profit-and-loss statement show a profit of Rs 11200 crore? Or is it a good metric for judging the company's performance? A weak primary business might not be a good indicator of the company's future.
Two aspects may still offer higher profits through subsidiaries. The subsidiaries of Eicher Motors include both the commercial and overseas motorcycles businesses. It is a sign that the primary motorcycles business is in decline if the majority of profits attributable to subsidiaries have been contributed by the commercial vehicle arms. If the overseas subsidiaries are performing well, it could indicate that Royal Enfield has a growing market in lucrative foreign markets. It is possible to interpret data in different ways and this can be mastered by studying the annual reports of companies operating in the same industry.
Each figure in a financial report is called a line item. The black lines are in the image. Line items can be accompanied by 'notes or'schedules' which provide more detail about the figure (underlined with the red line). Let's take as an example the cost of raw materials in the standalone profit-and-loss statement. It had an effect on the company's operating profits, as we discussed.
Note 29 gives details on the material costs.
Eicher Motors provided a detailed analysis of its largest subsidiary, VE Commercial Vehicles Ltd., in the review of the section on subsidiary. This subsidiary is an important business segment for Eicher Motors, so it was given a separate mention. This section is similar to the larger annual report. It discusses the financial metrics as well as the business' performance.
1. Where can I find an annual report for a company?
You can easily download the annual report for a company from its website's Investors section.
2. What is the best way to find out about all subsidiaries of a company?
Companies list all of their subsidiaries in the annual reports. Separately, companies list the number of subsidiaries that were added to the year and the companies that have ceased being subsidiaries.
3. Are annual reports reliable?
Information directly supplied by the company is included in annual reports. An annual report that contains incorrect information can lead to the company being sued. Investors can trust the data and information in an annual report.
4. Are there any data available on the company's debt in the annual report
Before investing in a company, it is important to know how much debt the company has. In the annual report, you will find the debt of the company under the heading 'Indebtedness. It is important to compare the amount of debt with previous years. This should be done in conjunction with the sales increase or decrease. It is a sign that the company is not effectively using capital if it takes on debt to expand its capabilities or to enter new markets. Other interpretations are possible.
5. When will Indian companies publish their annual reports?
The release date of the annual report is not set. Indian companies must send the annual report 21 days prior to the annual general meeting. The annual general meeting must be held within six months from the end of the previous financial years. The annual report is usually released between May and August by most companies.