Annual report
Learn what an annual report contains and why it matters for shareholders, investors, and your business.
Published Monday 17 August 2026
Table of contents
Key takeaways
- An annual report is a document that summarises a company's operations and financial performance over the preceding 12 months.
- Shareholders, investors, lenders, and regulators use annual reports to assess a business's financial health and future prospects.
- The core of any annual report is the financial statements, including the balance sheet, profit and loss statement, and cash flow statement.
- Publicly traded companies must produce annual reports, while private companies may choose to prepare them for regulators or tax authorities.
What is an annual report?
An annual report is a comprehensive document that details a company's activities and financial performance over the past year. It gives stakeholders a clear view of where the business stands and where it's heading.
Annual reports typically combine narrative sections (like a letter from the CEO) with detailed financial reporting. For small businesses, preparing an annual report can be a useful exercise in reviewing progress, even when it's not legally required.
Why annual reports matter
Annual reports provide transparency and help build trust with the people who have a stake in your business. They create a formal record of your company's achievements, challenges, and financial position.
- They promote accountability by documenting how the company has performed against its goals.
- They help investors and lenders evaluate the business before making funding decisions.
- They give you a structured way to reflect on the year and plan for the future.
- They meet regulatory requirements for businesses that must disclose financial information.
Who uses an annual report?
Several groups rely on annual reports to make informed decisions about a company.
- Shareholders and potential investors use them to assess profitability and growth prospects.
- Lenders and banks review them when evaluating loan applications.
- Employees may read them to understand the company's direction and stability.
- Customers and suppliers sometimes check them to gauge financial health before entering agreements.
- Regulators and tax authorities use them to verify compliance with legal and tax obligations.
What goes in an annual report?
Annual reports vary in complexity depending on the size and type of business. A small business report may be simpler than one from a large corporation, but the core components are similar.
- Highlights of the year's activities and key achievements
- A letter to shareholders from the CEO or managing director
- A management discussion covering results and future outlook
- The financial statements (balance sheet, profit and loss, cash flow statement)
- Notes to the financial statements, which explain accounting policies and provide additional detail
- An auditor's report, if the accounts have been audited
The financial statements in an annual report
The financial statements are the heart of any annual report. They present a factual picture of your business's financial position and performance.
- The balance sheet shows what the company owns (assets), what it owes (liabilities), and the owners' stake (equity) at a specific point in time.
- The profit and loss statement reveals whether the business made a profit or loss over the year by comparing revenue to expenses.
- The cash flow statement tracks money coming in and going out, showing whether you have enough cash to pay debts and fund operations.
- The notes to the financial statements provide context, explaining accounting methods and breaking down figures in more detail.
Public vs private companies
Publicly traded companies are required to produce annual reports. They must file these with share-market regulators and distribute them to shareholders. In some markets, a formal statutory filing accompanies the report (for example, a Form 10-K in the United States).
Private companies don't face the same legal requirements, but many still choose to produce annual reports. These can be useful when applying for loans, reporting to tax authorities, or simply reviewing business performance. If you're a small business owner, preparing an annual report can help you track your net profit and identify areas for improvement.
Simplify your financial reporting with Xero
Preparing an annual report is easier when your financial data is organised and up to date. Xero's accounting software helps you generate balance sheets, profit and loss statements, and cash flow reports in real time. Sign up to get one month free and see how Xero can support your reporting needs.
FAQs on annual reports
Here are answers to common questions about annual reports.
Why is an annual report important?
An annual report keeps stakeholders informed about a company's financial health and strategic direction. It also helps business owners review their progress and set goals for the coming year.
What's the difference between an annual report and a financial statement?
Financial statements (like the balance sheet and profit and loss) are part of an annual report. The annual report also includes narrative sections, such as the CEO's letter and management discussion, that add context to the numbers.
Do private companies have to produce an annual report?
Private companies aren't usually required to publish annual reports. However, they may need to submit financial information to tax authorities or prepare reports for lenders and investors.
How is an annual report shared?
Public companies typically publish annual reports on their websites and file them with regulators. Private companies may share them directly with stakeholders, such as banks or government agencies, as needed.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.