What is an annual report?
An annual report is the company’s full account of its year, money and operations, given to shareholders before the annual general meeting (AGM). It contains the three main financial statements (income statement, balance sheet, cash flow), the statement of changes in equity, the notes, the independent auditor’s report, the directors’ report, and a statement on compliance with corporate governance rules.
In Bangladesh, listed companies prepare their accounts under IFRS as adopted by FRC Bangladesh. Under BSEC rules the audit must be finished within a set time after the year ends (120 days, as reported in 2021). The report is usually on the company’s website, and each company’s page on the DSE website links to its financials and price-sensitive information. Deadline rules can change.
Say you are buying a used motorbike. The seller will always show shiny photos and say “good as new”. But you check the papers, a mechanic’s report and the service history. An annual report is the same: the glossy front pages are the seller talking, while the auditor’s report and the notes are the mechanic’s report.
Why it matters to an investor
- Beyond rumours, tips and social media, it is the most reliable first-hand information about a company, and it is free.
- Quarterly figures are unaudited; year-end figures have been checked by an independent auditor. A big gap between the quarterly and year-end numbers is information in itself.
- How the business makes money, what risks it faces, who owns it, and what dealings directors have with the company can only be learned by reading the report.
- As a shareholder, it is how you find out what happened before asking questions or voting at the AGM.
An order for reading it
- 1. The auditor’s report: first check whether the opinion is “unmodified” (clean). “Qualified” means the auditor disagrees on some points; “adverse” means the accounts do not give a fair picture; a “disclaimer” means the auditor could not form an opinion at all. Read any “emphasis of matter” or “going concern” comment carefully.
- 2. The three financial statements: last year’s figures sit alongside. See which way sales, profit, operating cash flow and debt moved.
- 3. The notes: the explanation for large or unusual figures. Look especially at related-party transactions (dealings with directors or their other companies), contingent liabilities (lawsuits, guarantees), and any change in accounting policy.
- 4. The directors’ report and chairman’s message: read these last, against the numbers. Check whether what was promised last year happened.
Nice words versus numbers
The front of the report is written by the company itself, so naturally it puts the good news first. Look in the numbers for what lies behind phrases like “a challenging year” or “strategic restructuring”. On the other hand, BSEC’s Corporate Governance Code requires the directors’ report to cover certain matters, such as explaining significant deviations from the previous year; those parts are useful.
Putting several years of one company’s reports side by side teaches the most: which promises were kept, whether accounting policies keep changing, whether the auditor changed, and whether reports came out on time.
Small warning signs
- Accounts repeatedly published late, or the AGM repeatedly postponed.
- Frequent changes of auditor, or the same objection in the audit opinion year after year.
- Large related-party transactions with vague explanations.
Common mistakes
- Being impressed by the glossy front pages and the chairman’s message alone.
- Skipping the auditor’s report and assuming “audited means everything is fine”.
- Skipping the notes, where key facts such as lawsuits, guarantees and related-party dealings sit.
- Reaching a conclusion from one year’s report without comparing it with earlier years.
Read an annual report back to front: first the auditor’s opinion and the numbers, then the notes, and the directors’ words last.