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As indicated by the name, a company's annual report is an official document that presents statements of information of a company for that year. This information ranges from the products they sell to analysis of how they have performed. Whilst they tend to be long, it is a useful skill to learn how to read through a report for a deeper understanding of a company, for trading and investing purposes or to prepare for an upcoming interview with a specific company. To begin with, it can seem daunting to read through an annual report as they can use terminology that make it seem very complicated, it can be very long and it is also sometimes hard to ascertain what pieces of information are relevant. To start practising, go to annualreports.com and search up a company that you are interested in. This is important because it makes the process of learning the skill more engaging and it could also be useful while preparing for an interview with a specific company. For example, if you have an interview with Credit Suisse coming up, there is no harm in flicking through the relevant parts of their annual report to get a better understanding of how the company performed that year and what they are looking to do in the future, and then using that information to show how invested you are in their company in the interview. Breakdown of the parts of an annual report: Business - This section looks at the company's business as a whole, including the products they sell, the industry they operate in, the services they provide, the market they are in and the competition within it and any major events that have impacted their business such as COVID-19. Risks - This section engages with the risk factors that the company faces and typically discusses: macroeconomic/industry, business, financial, legal and general risks. Within each sub-section, there are either one or more main risk statements and they are expanded upon. This information is useful if you are weighing up which stocks to invest in. Properties - This section lists the headquarters of the company and any other properties or land it owns and for what purposes. Legal Proceedings - This section contains information of any legal proceedings or claims that the company was involved in. Analysis - This is a longer section split into multiple parts involving management discussion and analysis (MD&A) on different aspects of the company revolving around their financial condition. An example of such a sub-topic could be stockholder matters, risk assessment or accounting. Corporate governance - This lists all the various committees of the company and the executives. What to be looking for: The company's values and goals Their industry and market The goods and services they provide How they are performing Note that this checklist has been simplified a lot and should be used as a guide whilst you are practising how to read through an annual report. Upon mastery of these skills you should then go on to read annual reports in their entirety as that will ultimately give you the best understanding of the company. These 4 points will give you a general understanding of the company from the report and are usually the most relevant. However, you will realise that the information for the same point can be found in different sections, from the MD&A to the coverage of recent events. With practice, over time, you will be able to easily locate this information. Now let us practise. Case Study: Apple's 2022 annual report ¹ - https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2022.pdf They are a company that "designs, manufactures and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related services" - found in Section 1 Item 1 under "Company Background" Their products include: iPhone, Mac, iPad, AirPods, Apple TV, Apple Watch, Beats Their services include: Advertising, AppleCare, Cloud Services, Digital Content, Payment Services - found in Section 1 Item 1 under "Services" Their market is in the, "consumer, small and mid-sized business, education, enterprise and government markets" and it sells their products and services through their online and retail stores - found in Section 1 Item 1 under "Markets and Distribution" Their company stock price has increased in the last 5 years with $100 in September 2017 equating to $411 in September 2022 - found in Section 2 Item 5 under "Company Stock Performance" They had an improvement in sales in 2022 compared to 2021 of 8% or $28.5 billion which they say is due to, "higher net sales of iPhone, Services and Mac" as a result of their release of new products throughout the year. However, they also say that weaknesses in other foreign currencies relative to the U.S. dollar had a detrimental impact on overall net sales in 2022 - found in Section 2 Item 7 under "Fiscal Year Highlights" Sales of all products and services increased in 2022 - found in Section 2 Item 7 under "Products and Services Performance" Sales in each of their listed geographical areas increased bar Japan where sales decreased due to the yen being weaker - found in Section 2 Item 7 under "Segment Operating Performance" Their products gross margin increased due to "a different Products mix and higher Products volume, partially offset by the weakness in foreign currencies relative to the U.S. dollar" - found in Section 2 Item 7 under "Gross Margin" Their services gross margin increased due to an increase in net sales - found in Section 2 Item 7 under "Gross Margin" Operating expenses increased due to an increase in staff, engineering program costs and advertising costs - found in Section 2 Item 7 under "Operating Expenses" This list covers the general points you should be looking for whilst going through the report for the first time. However, there is much more information to be obtained from other sections such as their risk statements and analysis which can be found in Section 1 and 2 respectively or their legal proceedings with Epic Games in Section 1 Item 3. Practise drawing out the key sentences or paragraphs from these sections with other company's annual reports. References: 1 - Apple Inc. (2022). Form 10-K. https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2022.pdf