Coca Cola - Benefits of Annual Financial Reports - Case Study Example

To what extent are a company’s annual report and accounts useful in understanding and analysing its market, productive and financial performance? Discuss using an extended example. (Name) (Institution) (Course) (Tutor) (Date) Introduction Every end of a financial year, publicly listed companies releases their annual reports detailing the company’s state of finances. It gives the shareholders a clear picture of how the company is doing. This article asks the question whether these records are a clear gateway into the company. It will look at the pros and cons of financial reports. It will also assess whether a current or a potential investor can make investment decisions based on these reports. Benefits of Annual Financial Reports The financial reports main objective is to inform the interested parties about the company. This information relates to the financial position, performance and change in this financial position. All this is to allow the interested party make up their minds as relates to an investment matter (Lee 2006). As the topic of this article has asked, the financial reports ensure to make critical available to the interested party. This will give the person a remarkably clear picture of the company’s performance for the entire financial year. In many instances, shareholders do not get a chance to get an insight of the progress of their investments. Some of the reasons for this are that they do not live near the company for them to walk in to demand answers to questions they have regarded the company. In such instances, the financial report, sent to them on an annual basis, will give them an insight to how the company is performing. Of importance here is that these reports are audited and, have an accurate picture of the company’s state of affairs (Gibson 2011 and Leder 2003). Before a company can submit an Annual Financial Report to its shareholders, there are a number of requirements that this report must meet. It must be up to the standards of the Financial Accounting Standards Board (FASB). It must also satisfy the standards of the Securities Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA) (Friedlob and Welton 2008). All these requirements mean that the company cannot easily hide its affairs. It also means that the company has to account for all the money it spends on a daily basis. This will give the investor a clear picture of the assets it has. It also means that the company can indicate the market trends thereby give the investor a good picture of its penetration in the market. Looking at the International Monetary Fund’s (1996) (IMF) Annual Financial Report for the year 1996, this is quite clear. There is a breakdown of the bank’s spending in that financial year. This information includes the bank’s sources of capital namely contributions from nations. It indicates the directions that loans are going. This information includes the outlook of the global economy. In this manner, the bank discusses the performance of different countries. Page 95 discusses the Zimbabwean government’s particulars. This includes the performance of the economy in terms of the different industries within the country. Coca cola is an international company that produces non-alcoholic beverages. The company releases its annual report of its financial performance after every financial year. This article will focus on the 2009-2010 financial year. It indicates the sales distribution facilities. This is an indication of the companys status. It tells the shareholders as well as any interested party that the company is indeed making headways. The report gives a picture of the company in terms of the assets and liabilities. Its net sales listed are 1.5 million dollars (P. 94). In the financial report under the title property, the company has listed all the assets like buildings that it holds and the income that it derives from these assets. It has listed production facilities and capacity at which they run. It has for instance indicated that facility in Charlotte, North Carolina, is operating at 70% capacity. All this serves to give the investor a picture of the company’s performance. A person standing outside looking in will feel that this information could be easily counterfeited. It could well then be fed to the gullible reader who has no inkling as to just how misleading it is. To counter this, there is the Form 10-K on the 9th page of the report. This is an indication of the authenticity of the report since it is audited. At the same time, this annual report is available online along side all other preceding reports. A person who has a bone to pick with any information has the freedom to walk into the company’s headquarters and ask these questions as long as they have the necessary clearance. These reports are printed earlier than the Annual General Meeting (AGM) of the company. This means that a person who is an interested party can acquire the document before hand. The said person will carefully comb through the document and note all areas with discrepancies. He/she then will get the chance to have all this cleared up at the AGM. The person can even form a correspondence with the company management over the phone or other means mutually agreeable. Looking at the Coke financial report for 2010, the company indicates the profits that it gained through out the financial year. It also indicates the performance of its different facilities located in the United States. This gives the reader a decidedly good picture of the company’s performance. It has also given a quarterly assessment of the year 2011. This allows the shareholders a chance to understand what the company is doing with its funds. The accuracy of these financial reports safeguarded all over the world. In the United Kingdom, disclosure of the information and the duty to disclose this information is set forth by the Companies Act 1985 and 1989 (Lee 2006). This means that the companies have to release information that is a true representation of the company and its performance. The Companies Act 1985 guides the auditing of information in the report. It also gives the auditor the right to attend meetings of the shareholders and ask questions. It also ensures that these questions get to be responded to in a satisfactory manner. Limitations of the Annual Financial Reports The Financial reports are quite cumbersome in the manner that they look. They contain a large volume of figures and words (Leder 2003). This means that to the untrained eye of a layman, this is a lot of jargon which is confusing. It also means that the person will go through the entire report but may come out as clueless as someone who has not read it. Directors can easily supply a set of unfavourable information which will not be gotten by the reader. This highlights the importance of the Annual General Meeting. This is where the shareholders get to address the pertinent issues that they feel have not been fully tackled in the report. According to Leder, the shareholder or recipient of the report must learn to read the fine print. According to a personal account that he gives at the introduction, the financial reports of a bank released to the shareholders indicated that the company was doing a stellar job. The company’s annual reports were telling the shareholders that it had made an above 50% profit. However, on the fine print which most people did not bother to read, the bank indicated that it was under surveillance by the Office of Thrift Supervision (OTS). The bank was to collapse a while later. Companies have the option of submitting a summary report to the shareholders in advance. This is a document that does not contain a lot of figures. In the absence of a proxy and Form 10-K, it is hard to make due with just this summary report. It is clear that not many clients will bother to request these two subsequent documents. With just a summary report, the shareholder will be having an extremely one sided perspective of how his/her investment is performing. This one sided perspective is dangerous since it has the possibility of diverting the shareholder’s attention from more pertinent matters in the company. The reports are limiting in terms of accuracy. They come out after a lapse of a number of months from the end of the financial year (Lee 2006). This means that the situation has progressed from the time the figures in the report were gathered. The company may be declaring profits in its reports, but within the duration from when the report come out, the company could have gone through a turmoil that has left it at a terrible place financially. Trusting the figures as they are in these reports is something that the recipient must avoid having to do. Conclusion As the article has articulated, the financial reports have an immensely valuable role that they play in assisting the interested party to make investment decisions. As a result of the immense scrutiny that the company goes through, the company cannot afford to give false misleading information. On the other hand, there are limitations to the scope of dependability. Lee (2006) is of the opinion that though the information provided is audited, there is the issue of currency. The information has the problem of not being fully reliable because of the lapse of time. That not withstanding, the information provided in the reports is exceptionally reliable in giving the interested party a good perspective of the company. It should be taken into consideration when a person wishes to look into matters like market, productivity and financial performance of a company. Bibliography: Coca Cola. 2010. Annual Financial Report 2010. Accessed on 08th Jan 2013 from: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIwNjUxfENoaWxkSUQ9NDM0MTg0fFR5cGU9MQ==&t=1 Friedlob, G. T. and Welton, R. E. 2008. Keys to Reading an Annual Report. New York: Baron’s Educational Series, Inc. Gibson, C. H. 2011. Financial Reporting and Analysis: Using Financial Accounting Information. Ohio: South-Western Cengage Learning. International Monetary Fund. 1996. International Monetary Fund Annual Report Annual Report 1996, Part 3. Washington D.C. International Monetary Fund. Leder, M. 2003. Financial Fine Print: Uncovering A Company’s True Value. New Jersey: John Wiley & Sons, Inc. Lee, T. A. 2006. Financial Reporting and Corporate Governance. West Sussex: John Wiley & Sons Ltd. Read More