| Strategic question | How financial statements help |
|---|---|
| Can we afford to expand? | Statement of financial position shows cash, existing debt (gearing) and assets that could be used as security |
| Which products or divisions should we grow or close? | Segment results in the statement of profit or loss show which parts are most profitable |
| How should we finance growth? | Gearing and retained earnings show whether debt or equity is more appropriate |
| Are we becoming more or less efficient? | Trends in margins, ROCE and efficiency ratios over several years |
| Are we vulnerable to a takeover? | Low share price relative to assets or earnings; dividend record |
| Should we acquire another business? | The target's accounts show its profitability, debts and asset values |
| Contents | Usefulness |
|---|---|
| Chairman's statement / chief executive's review | Explains performance, strategy and outlook — useful for understanding direction, though written to present the company favourably |
| Strategic report and business review | Objectives, strategy, risks and key performance indicators |
| Directors' report and corporate governance statement | Board structure, directors' pay, how the company is controlled |
| Auditor's report | Independent opinion on whether the accounts give a 'true and fair view' — vital for trust |
| Financial statements | Statement of profit or loss, statement of financial position, cash flow statement |
| Notes to the accounts | Detail on accounting policies (depreciation, inventory), |
| Contents | Usefulness |
| debts, segments | |
| Sustainability / CSR report | Environmental and social performance; increasingly important to investors and the public |
| Stakeholder | What they look for in the annual report |
|---|---|
| Shareholders and potential investors | Profitability, dividends, growth prospects, investment ratios, strategy |
| Lenders (banks, debenture holders) | Liquidity, gearing, interest cover, security |
| Employees and trade unions | Profitability and stability — job security and ability to pay wage rises |
| Suppliers | Liquidity — will they be paid? |
| Customers | Stability — will the business continue to supply and honour guarantees? |
| Government and community | Tax paid, employment, environmental and social impact |
| Competitors | Performance and strategy — useful for benchmarking |