THE KEYS TO AN EFFECTIVE ANNUAL REPORT
No facet of your company's financial relations program requires more energy, time or money than the production of your annual report. Yet no single document you produce can carry greater weight and greater meaning for all your key audiences.
But just what do these audiences actually think of annual reports? What do they find most important about them? What appeals to their interests most?
We've consolidated the insights that we've gained through the preparation of dozens of annual reports and the results of surveys conducted by various professional financial organizations, as well as our own firm, in this report. The focus of this report is on the perceptions of two of the most important audiences for an annual report: the securities analyst and the shareholder.
The Analyst's Perspective
In our conversations with financial analysts, as well as in surveys conducted by the Financial Analyst Federation, analysts have identified the following features as essential to an effective annual report:
Financial data must be immediately accessible. The financial highlights are the first place analysts (and brokers) will turn to when opening a report. The highlights provide both a look at recent growth and an indication of future growth. The best and most immediate way to capsulate this is through the use of graphs.
A concise yet clearly defined capsule in the corporate profile of the company's lines of business and markets.
A shareholder's letter that provides an analysis rather than just a recounting of the past year, and a sense of the corporate direction for the next year. The discussion should be as frank and candid as possible, spelling out the problems and unmet expectations, as well as the company's successes.
An operations review that will quickly tell the corporate story. Graphs, subheads, photo captions and a clear-cut breakdown of operations can help to get the information across quickly and concisely. These elements also alleviate the risk that they will simply glance and skim over copy which may be quite important but too time consuming to read through.
Narrative copy that is future-oriented, that spells out management's philosophy and general plans to foster the company's growth. After all, an analyst will recommend a stock more on its future expectations than on past performance.
An overall indication of how divisions within the company fare inside their respective markets, including information such as market share or percentage change in sales.
A sense the company is truly attempting to tell its story to the average shareholder. This helps analysts when they recommend a stock for purchase.The Shareholder's Perspective
The average shareholder spends approximately three and a half minutes "reading through" an annual report, according to numerous surveys. These same surveys also have shown that:
The more money a shareholder has invested in the company, the more time he'll spend with the report.
Average shareholders will often make decisions to purchase more shares based on an annual report they like. On the other hand, shareholders generally will not sell off shares based on an annual report they don't like.
Shareholders tend to use the annual report to recommend purchase of stocks to friends and relatives.
Potential investors usually ask a company for a copy of their report before making a decision to buy stock.In our own work with individual shareholder's, we've learned the following about their annual report reading habits:
Shareholders judge the cover of the report to be very important in gaining their attention. It should be dynamic and captivating; but most of all, it should say something meaningful about the company and what it does.
Although most shareholders do not read the financial review section, many do read the financial highlights. Graphs and charts are an effective way to illustrate growth in the highlights, giving readers a quick understanding without requiring an analysis of the data.
The shareholders letter, because it is too often written in passive and verbose language, gets skimmed over by most readers. To insure that the most important messages don't get lost, it's a good idea to use subheads to highlight key information.
Shareholders consider photographs to be the most effective vehicle for telling the company's story. They admit that once they have looked at the highlights and skimmed the letter, they look at the pictures in the report. Effective use of captions can go a long way toward telling the company's story, by demonstrating the role the subject plays in the grand scheme of the company.
The use of descriptive headings and sub-heads in the narrative section of the report will help to communicate key points to those readers who only scan through the report.
By incorporating these features in your next annual report, you will enhance your report's readability and maximize its effectiveness as a communications vehicle with both analysts and individual shareholder. If we can be of any assistance in the preparation of your next annual report, please don't hesitate to call (734) 420-3174 or send an e-mail message to rein@nomm.com
Write to Us