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Synopsis

Want to save time on your next annual report? Learn how to use our Annual Report (Part 3) toolset to create an annual report that covers important topics like your company's value creation, team highlights, financial ratios, competitor analysis, full year timeline, strategic goals for next year and five-year financial projections, all of which you can download and customize to your needs.

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Some strategies for presenting a team's accomplishments in an annual report include highlighting key achievements, showcasing individual contributions, and demonstrating how the team's work has contributed to the company's overall goals. It's also beneficial to include data and metrics that quantify the team's success, and to present this information in a visually appealing way, such as through charts or infographics. Additionally, sharing stories or case studies can provide a more personal and engaging view of the team's accomplishments.

A company's financial ratios can be effectively communicated in an annual report by presenting them in a clear and concise manner. This can be done by using graphs, charts, and tables to visually represent the data. It's also important to provide context for the ratios, explaining what they mean and why they are important. Additionally, comparing the current ratios to past performance and industry standards can help stakeholders understand the company's financial position.

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Outcome

Annual reports can be a powerful promotional tool for your company. They are a key marketing tool for investors, and often include illustrations, letters from a key chair or CEO, and always offer a financial overview. Because it is an outward external facing document, they also should be written as such. They often highlight achievements and goals for the future.

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To improve the effectiveness of an annual report, you can ensure it is clear, concise, and engaging. Use visuals like charts and infographics to make data easy to understand. Include a letter from the CEO or key chair to provide a personal touch. Highlight achievements and set clear goals for the future. Make sure the report is written in a language that is easy for all stakeholders to understand. Lastly, ensure the report is easily accessible, either in print or online.

An annual report can contribute to a company's strategic projections by providing a comprehensive overview of the company's financial status, achievements, and future goals. It serves as a key marketing tool for investors, offering insights into the company's performance and strategic direction. The report can also include messages from key figures such as the CEO, further emphasizing the company's vision and plans for the future.

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When investors read these documents, they are looking for an understanding of the company's core business, customers and industry, its financial data like a balance sheet, cash flow, or past quarter performance, as well as any risk factors associated with the company like impending regulation, legal cases, too much customer concentration, or industry-wide considerations like supply chain problems.

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A company can effectively communicate its core business to investors in its annual report by clearly outlining its business model, target customers, and industry. It should also provide comprehensive financial data, including balance sheets, cash flow statements, and past quarter performance. Additionally, the company should disclose any risk factors, such as impending regulations, legal cases, customer concentration, or industry-wide considerations like supply chain problems.

A company can improve its customer concentration by diversifying its customer base, offering a wider range of products or services, improving customer service, and implementing effective marketing strategies. It can also focus on customer retention strategies, such as loyalty programs, to keep existing customers while attracting new ones.

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For example, check out the video above to find out why Warren Buffett reads annual reports.

Tool highlights

How we create value

Begin with your core vision, mission, values and team, as well as any key achievements and milestones from this year. Once that's all out of the way, you can focus on your core business, how it works, and how you create value.(Slide 7)

Instead of a paragraph block of text, you can break down how you create value across multiple elements of your business.

Show the creation of value across multiple stages, and highlight additional details and key metrics that support your statements in a visualization similar to a KPI dashboard, but applied to your value creation.

Last, list the end result of the creation process as the value created. This list of created value should not just be company-centric, but value created for other stakeholders like customers, shareholders, or societal benefits from the customer.

Elsewhere in this toolset, you can highlight ESG related factors with its own slide. These could be value created through upskilling employees, hiring diverse employees with fair wages, or any sustainability endeavors you've undertaken.

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Team of the year

After you've introduced your business, you may want to highlight a specific segment or team for exceptional performance. A team of the year visualization helps draw investor attention to a specific team, more from a recognition standpoint than a reporting standpoint. (Slide 8)

Execs can use this slide to highlight stand-out accomplishments from a specific segment of the business, which can then be used to help set benchmarks, encourage employee motivation, and showcase motivated employees to external stakeholders like shareholders.

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Financial ratios

Next up, the financials. No annual report is complete without an overview of finances. Even if they're at a glance or a high level, you need to break down your financial data so internal and external stakeholders can assess your performance. The most standard and comprehensive ways to report your financials is with a financial ratios report.(Slide 13)

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Financial data in an annual report can be used to identify trends and patterns by analyzing the financial ratios and other financial metrics over a period of time. This can provide insights into the company's profitability, liquidity, efficiency, and solvency. By comparing these metrics year over year, one can identify trends in revenue growth, cost management, asset utilization, and debt management. Patterns in these areas can indicate the company's financial health and its potential for future growth.

Some challenges in compiling and presenting financial data in an annual report include ensuring accuracy of data, maintaining consistency in reporting standards, dealing with complex financial transactions, and presenting data in a way that is understandable to various stakeholders.

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These are your company's P/E Ratio, which is the ratio of a company's share price to the company's earnings per share; your return on assets, which is how profitable a company's assets are in generating revenue; debt to equity,which is the relative proportion of shareholders' equity and debt used to finance your company; return on equity, which is the profitability of a business in relation to the equity or assets minus liabilities; current ratio, which measures whether or not a firm has enough resources to meet its short-term obligations; and finally return on investment, which is the net profit and cost of investment that results from an investment of some resources.

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The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It compares a firm's current assets to its current liabilities. A high current ratio indicates that the company has enough resources to cover its short-term liabilities, while a low current ratio may indicate a potential liquidity problem. However, an excessively high current ratio may also indicate that the company is not efficiently using its current assets. Therefore, it's important to compare the current ratio with industry standards and the company's historical trends.

The debt to equity ratio is a financial metric that provides insight into a company's leverage, i.e., the extent to which the company is financed by debt compared to shareholders' equity. A high debt to equity ratio indicates that the company has been aggressive in financing its growth with debt. This can result in volatile earnings due to the additional interest expense. On the other hand, a low debt to equity ratio might imply that the company is not taking advantage of the increased profits that financial leverage may bring. However, it's important to compare this ratio with industry peers as it can vary significantly across different industries.

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In this visualization, you can use the box next to each category to input the relevant data. Then address these numbers and how they compare to previous years by plugging them in on the right hand side. Then, adjust the bar graphs to reflect the year-over-year change. If you can show consistency, you might attract the attention of Buffett:

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A company like Tesla could benefit from the techniques mentioned in the Annual Report. By using the suggested data visualization techniques, Tesla could effectively highlight its year-over-year growth in electric vehicle production and sales. This could attract potential investors and stakeholders by demonstrating consistent growth and progress.

Covered topics like value creation, team accomplishments, and financial ratios play a crucial role in enhancing business strategy. Value creation helps in understanding the worth of the business to its customers and stakeholders. It can guide strategic decisions to increase the value offered. Team accomplishments highlight the effectiveness of the team and can be used to identify areas of strength and improvement, thereby informing team strategy. Financial ratios provide insights into the financial health and performance of the business. They can guide financial and investment strategies, helping to ensure the business remains profitable and sustainable.

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This overview is indispensable to any annual report, as the one key determinant to a company's level of success is its financials.

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Competitor analysis - market share

Once the stakeholders involved know your financials, it's important to put those numbers in context, particularly in terms of your performance benchmarked against your competitors. A Market share visualization can be used as a competitive analysis to show where you stack up against a series of top rivals. (Slide 23)

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The main components of a market share visualization in competitive analysis typically include the following:

1. Market Size: This represents the total sales volume of all companies in the market.

2. Company's Market Share: This is your company's portion of the total market sales.

3. Competitors' Market Share: These are the portions of the market controlled by your competitors.

4. Time Frame: The period over which the market share is measured.

5. Segmentation: The market can be segmented based on various factors like geography, customer demographics, product type, etc. Each segment's market share can be visualized separately.

6. Trends: Changes in market share over time can be visualized to identify trends.

Market share visualization is a method used to visually represent a company's share in the market compared to its competitors. It provides a clear and concise view of where a company stands in the market. Other competitive analysis frameworks such as SWOT analysis, Porter's Five Forces, and PESTEL analysis provide a more in-depth understanding of a company's competitive position. SWOT analysis evaluates a company's strengths, weaknesses, opportunities, and threats. Porter's Five Forces assesses the competitive forces within the market, and PESTEL analysis looks at the macro-environmental factors affecting a company. While market share visualization provides a snapshot of the market position, other frameworks provide a more comprehensive analysis.

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While market share is important to any industry, it's particularly useful for those companies that plan to enter new markets. This visualization uses bar graphs to show how you match up to your competition in terms of market share across four key factors of competition. A little box on the side can hone in on qualitative or quantitative highlights at a glance. This helps provide additional context or helps readers digest the data represented in the graph.

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Team accomplishments can be reflected in terms of market share by showing how the team's efforts have led to an increase in the company's market share. This could be through launching successful products, improving customer service, or implementing effective marketing strategies. The increase in market share can be visualized using graphs or charts, showing the company's position relative to its competitors. It's also important to highlight any specific actions or strategies the team implemented that led to these results.

Financial ratios are crucial in understanding market share as they provide a quantitative measure of a company's performance. They can indicate a company's profitability, efficiency, liquidity, and solvency, which are all important factors in determining its competitive position in the market. By comparing these ratios with those of competitors, a company can identify its strengths and weaknesses, and strategize accordingly to increase its market share.

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Ever wondered why Warren Buffett says you may want to include a competitor analysis in your reports? Check out the video above. And while you're at it, as a reminder, don't forget to download and customize these slides to use for your own annual report.

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12-month timeline

This 12 month timeline provides a month by month overview to key stakeholders on the top objectives and activities for each month. (Slide 32 and 33)

Execs can also provide a full 12 month gantt chart visualization that can be segmented to highlight key milestones, leadership objectives, operations-related endeavors, marketing activities and resource development.(Slide 34)

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Strategic goals for next year

Now that you've covered the last fiscal year, it's time to touch on your plans for the future. While annual reports focus on the present and where the company is today, it's also helpful for stakeholders to highlight your expectations for following years.

Outline strategic goals for next year to share your objectives for the future, why these objectives are important to your company, and the key initiatives the company will undertake to achieve it.(Slide 29)

Simple graphics can be used to break up objectives into broad categories like financial objectives, process or operations-related endeavors, quality and standards initiatives or consumer-facing goals, just as a few examples. Each company's strategic goals will be broader or more specific depending on their industry, so customize these slides as you wish to best fit your company and industry.

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Questions and answers
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To effectively present financial ratios and competitor analysis in an annual report, you can use a combination of text, tables, and graphics. Start with a clear, concise summary of the key findings. Then, use tables to present the raw data and ratios in a structured, easy-to-understand format. Graphics such as bar charts, pie charts, or line graphs can be used to visually represent trends and comparisons. It's also beneficial to provide context for the data, such as industry benchmarks or historical trends, to help readers understand the significance of the ratios and analysis.

A company's strategic goals can be customized to best fit their industry in an annual report by first understanding the specific needs and trends of the industry. This can be done by conducting a thorough industry analysis. Once the industry-specific factors are understood, the company can then align its strategic goals with these factors. The goals can be broken down into broad categories like financial objectives, process or operations-related endeavors, quality and standards initiatives, or consumer-facing goals. The level of specificity or breadth of these goals will depend on the industry. The goals should then be clearly communicated in the annual report using simple graphics and clear language.

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Because annual reports are commonly shared externally, it's important for companies to use the appropriate public facing diplomacy. For instance, in the "what it means to us" section, you should phrase the benefits in a way that emphasizes its importance to external stakeholders.

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Financial projection

Last, it's time to point to your future financial projections.

Use this KPI dashboard style visualization to highlight your key financial projections. Map out your anticipated revenue growth trajectory, net income, cash balance, and net free cash flow expectations.(Slide 30)

You can also chart your projections for up to five years in the future across key metrics like profitability, efficiency, leverage, return on assets, return on equity, liquidity, and break-even revenue.

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