Few financial statements have a broader audience than a company’s annual report. Not only does it summarise the company’s performance for the preceding year, but it also charts a course for the year ahead.
Knowing how to prepare an annual report is a key skill for anyone in a leadership position. It seems that such reports have been getting longer with each passing year (expansion of around 15% between 2005 and 2014), but this doesn’t necessarily mean companies are able to present the kind of information in them that stakeholders are looking for. Investors will, of course, carefully analyse the financial performance of the businesses they consider funding, but they also want to understand the health and future of the company in question. They are looking for a holistic view, just like we are when visiting the doctor for a general check-up.
Every January since 2016, I have put together an annual report for Sandberg, the company I work for. Sandberg is a privately owned, medium-size company, so the report is not written to attract investors, nor primarily even to inform the shareholders. It is written for our staff. I see my colleagues as our key stakeholders who invest their time and talent in the company in the same way as an investor might invest their money. They deserve to have this tool that provides information about the company’s financial performance and communicates our progress and future plans. The report is undoubtedly also useful for sharing with other interested parties like our bank manager, or could also be used for grant applications and showcasing our brand to the world. But for me, the main purpose of our annual report is to build trust and credibility with the people that matter the most.
How to write an annual report
Traditionally, an annual report is split into two halves. The first part contains the company’s narrative, which usually includes the following elements:
- a management discussion and analysis that provides an overview of the company’s performance and insight into the factors that impacted the company’s results;
- a business overview of the company’s operations including products, services, market position and key achievements;
- a section on industry trends that reviews the developments in the industry and the impact they may have on the company’s future;
- corporate governance information about the board of directors and executive management team;
- a corporate social responsibility update about the company’s commitment to sustainability and its impact on the community and the environment;
- and the company’s plans for future growth, innovation and expansion.
The second part strips out the narrative components and presents the financial statements, including income statement, balance sheet and cash flow statement. The financial statements are particularly valuable to investors, as they provide detailed information about the company’s performance without obscuring it with any particular narratives or opinions.
- The income statement shows the company’s revenue and expense accounts for a set period. Using trial balances from any two points in time, a business can create an income statement that tells the financial story of the activities for that period.
- The balance sheet shows the company’s assets, liabilities and owners’ equity accounts as at a specific date, illustrating the company’s financial position and health at that point.
- The cash flow statement provides a detailed picture of what happened to the business’s cash during an accounting period. Cash flows are important for valuing a business and managing liquidity and are essential to understanding where actual cash is being generated and used.
Sometimes, however, these standard sections are not enough. What about clients; how the company measures their satisfaction with the service, product range and prices? And the employees; what are the productivity and employee retention numbers? Metrics like these could be leading indicators of the company’s future performance, and that is exactly the kind of information that savvy stakeholders like to see.
Communicating with global stakeholders
Our company’s experience with annual reports is not limited to the one I produce. A key part of our business is translating our client’s annual reports for their global stakeholders. The first quarter of the year is always the busiest period for this type of work and our teams can be booked up for months in advance as the reports are needed for distribution in multiple languages as soon as the original language versions have been written. The localisation of these documents not only requires financial acumen, but also storytelling skills, especially when it comes to presenting a clean narrative and a consistent client brand.
Different language versions of the company’s annual report allow the business to reach a wider audience of investors, customers, suppliers and employees who may not speak the language in which the report was initially produced. If the company operates in multiple countries or has a significant presence in different regions, a multilingual report can help reinforce its global market presence. In some countries, there may even be legal requirements to provide financial information in specific languages. Providing the annual report in multiple languages ensures that stakeholders have a clear understanding of the company’s performance and strategy, regardless of their language proficiency. A well-designed, multilingual annual report can enhance the company’s brand image and reputation, demonstrating its commitment to communicating effectively and transparently with all of its stakeholders.
How to write an annual report for global audiences
When writing an annual report that will be translated into multiple languages, consider the following guidelines to make the translation process smoother:
- Use simple and clear language: Avoid using complex words, lengthy sentences and idioms that may not be easily translatable. Stick to plain and straightforward language.
- Be consistent: Use the same terminology throughout the report to avoid confusion during translation.
- Avoid cultural references: Cultural references may not translate well and will have to be recreated for different cultures, so it is best to avoid them.
- Use visuals: Visuals can help convey complex information in a more accessible way and can be understood without needing to be translated.
- Use headings and subheadings: Organising the report into clear sections and using headings and subheadings can help keep the content easy to follow.
- Work with a professional translator: Only collaboration with a trustworthy, qualified human translator will give you the peace of mind about the content being accurately translated and the intended message conveyed in an engaging way.
Reports that engage stakeholders
You may have noted that I deliberately didn’t claim that I write Sandberg’s annual report. Saying that would be taking the credit for the diligent work of our team managers who each prepare a management report for their department, which I then use to put together the final document by summing up their results and adding some context and narrative to them.
The tone and content of an annual report can give you interesting clues about the company in which you are thinking of entrusting your capital – or your working time and talent. Many CEOs work long and hard on their personal message which is often presented as a letter to the shareholders. This letter is the CEO’s chance to provide insight into the challenges and opportunities the company has encountered, an explanation of the causes behind the figures in the financial section and insight into the future of the business.
If you’re not an investor but an employee working within a company, the annual report can impart valuable information pertinent to your career. Understanding how your company is performing and the impact your actions have had on its business objectives can help you advocate for a promotion or other form of career advancement.
A company can enhance or damage its reputation and value through the way it behaves, but also by how it reports. If you manage to instill confidence with your content, you improve your chances of engaging stakeholders. Market research shows that there is a direct link between stakeholder engagement and market value. In a PwC survey of 85 investment professionals, 80% said that their perception of the quality of a company’s reporting impacts their perception of the quality of its management. This indicates a clear correlation between trust, reputation and value.