Annual Reports - The 20% That Tells You 80%

Q&A: Questions & Answers Investing Basics Q&A
1

Hi everyone, I recently started reading annual reports and it can feel overwhelming for new readers - 300+ pages of charts, numbers, and legal text. It is often quoted that you just have to read 20% of the report to get 80% of the value.

Here are the sections I found useful and are mostly recommended:

  • Company Overview - Good for a first read to understand the business, or after any major shift.
  • Leadership’s Message - Strategy, priorities, acknowledgements and tone from the top.
  • Management Discussion & Analysis (MD&A) - What happened, why it happened, and management’s view of risks & opportunities.
  • Board’s Report - Dividend policy, Board changes, Management renumeration
  • Auditors’ Opinion - Opinion, Key Audit Matters, or any red flags raised by auditor
  • Financial Statements - Consolidated financials and Cash flows
  • Notes to Financial Statements - Accounting policies, Contingent liabilities, Related party transactions and other minute details etc.

How much importance do you give to annual reports these days? What do you actually look for to spot insights or red flags?

I would love to hear from your experience and for this thread to become a collection of practical tips about reading the annual report.

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2

Absolutely right.

To study a company from scratch, the first and most important document to refer to is the Annual Report. It provides a comprehensive view of what has happened in the past and outlines the company’s expectations and strategic direction going forward.

However, for companies that we are already tracking regularly—especially those in our portfolio—we typically stay updated through quarterly results, investor presentations, and concall audio recordings. These sources help us stay in sync with ongoing developments.

Among quarterly disclosures, the Notes to Financial Statements are arguably the most crucial section to read. Auditors, in order to safeguard their position, highlight every detail that needs attention in this section. Unfortunately, many of us tend to overlook these notes, missing the subtle yet important messages being conveyed by the auditors.

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