This chapter begins with an overview of a company’s Annual Report and shows how ratio analysis can be used to interpret financial statements. This interpretation covers profitability, liquidity (cash flow), gearing (borrowings), activity/efficiency and shareholder return. We also look at working capital management in detail. Two case studies demonstrate how ratios can be used to look ‘behind the numbers’ contained in financial statements. The chapter concludes with several alternative theoretical perspectives on financial reporting including corporate social and environmental reporting.
For all companies, the Companies Act requires the preparation of financial statements. Financial statements are an important part of a company’s Annual Report, which must be available to all shareholders for all companies listed on the Stock Exchange.
The Annual Report for a listed company typically contains: