1. What are the three key aspects of a typical annual report from a large corporation?
2. How does the chairperson of the board use the annual report as a sales message to stockholders or potential stockholders?
3. What is the physical layout of the annual report? What type of printing and typography is used?

The textbook indicates that one of the disadvantages of the corporate form of ownership is the need for disclosure of information. The text further points out that most of this information is disseminated through the annual report. Here are some observations on that document.

Although most corporate annual reports resemble slick magazines, they are more than just a journalistic effort. Most annual reports contain rather detailed financial statements, but they are also more than just an assemblage of accounting documents. An annual report often appears to be used only to impress stockholders and prospective stockholders, but it is more than company propaganda. Although annual reports seem to be good examples of printing and graphic work, the publishing of annual reports is not left to printers and graphic artists alone; control of the annual report is exercised by the highest administrative chair in the corporation’s hierarchy. In short, the annual report is many documents rolled into one. Let us consider the functioning of three key aspects of a typical annual report from a large corporation.

Financial Statements

Even the most modest annual report contains a balance sheet and income statement. A statement of changes in financial position and a statement of retained earnings will be included. More elaborate reports may contain a number of additional financial documents that the board of directors feels will enhance the annual report. These statements follow accepted and traditional accounting procedures and, in almost every case, have been audited by a highly responsible and prestigious accounting firm that does not want its name attached to any accounting materials that are not proper. Therefore, when a company has bad news to report to its shareholders, this bad news is usually very hard to hide in the financial statements. Such news is hidden only from those people who are not adept at reading accounting data.

To learn the most from a set of accounting documents in an annual report, it is important to read the footnotes. Financial analysts say that the footnotes reveal more about a company’s health than the rest of the annual report combined.

The So-Called Factual Narrative

Most annual reports contain quite a few pages of straightforward narrative about the company’s operations for the year in question. Although these comments are meant to be informative rather than persuasive, they will normally convey the positive side of the picture. Often this narrative explains much of what is contained in the accounting documents. In such cases, a person not familiar with the conventions of traditional accounting may find the narrative offers accounting information in a more digestible format.

Normally, the narrative will contain full-color photographs that are as striking and as technically perfect as any original. Beautiful photographs of corporate facilities and products lend a dash of inspiration to the report. Exotic pictures of the corporation’s installations in far-flung corners of the globe are especially popular, as are elegant portraits of the corporation’s top executives. The latter are usually commissioned studio portraits in which each person is groomed immaculately, the very picture of success.

Even in a bad year, the factual narrative leaves the reader confident that the firm will surmount all of its problems and remain a viable economic force for many years to come.