How to read a financial report? An annual report is unfamiliar terrain to many people. For those who are not accountants, analysts or financial planners, this booklet can help them to better understand such reports and possibly become more informed investors. | Merrill Lynch How to Read a FINANCIAL REPORT How to Read a Financial Report GOALS OF THIS BOOKLET An annual report is unfamiliar terrain to many people. For those who are not accountants analysts or financial planners this booklet can help them to better understand such reports and possibly become more informed investors. This booklet was written and designed to help educate and guide its readers so they might Better understand the data included in financial reports and how to analyze it. Learn more about companies that offer employment or provide investment opportunities. A good starting point for achieving these goals is to become familiar with the main components of a company s annual report. Highlighted throughout this booklet are key selected terms and definitions as a reference for readers. See also the Glossary of Selected Terms in the back of this booklet. COMPONENTS OF AN ANNUAL REPORT Most annual reports have three sections 1 The Letter to Shareholders 2 the Business Review and 3 the Financial Review. Each section serves a unique function The Letter to Shareholders gives a broad overview of the company s business and financial performance. e Business Review summarizes a company s recent developments trends and objectives. The Financial Review presents a company s business performance in dollar terms and consists of the Management s Discussion and Analysis and Audited Financial Statements. It may also contain supplemental financial information. In Management s Discussion and Analysis MD A a company s management explains significant changes from year to year in the financial statements. Although presented mainly in narrative format the MD A may also include charts and graphs highlighting the year-to-year changes. The company s operating results financial position changes in shareholders equity and cash flows are numerically captured and presented in the audited financial statements. The financial statements generally consist of the .
