And every year the annual report greets us. For many Swiss companies, the annual report is obligatory and therefore we dedicate an article to it. We take a look at the content and structure of an annual report. How to create it correctly and which design fits to it.
We also go into the modern meaning. If a few years ago an annual report was just a mandatory task, today it is a popular marketing tool in combination with web design.
- Definition: What is an annual report?
- Obligation to prepare an annual report
- Create an annual report: Here’s how
- Tips for your annual report
- Create a business report: Conclusion
In the annual report, you comprehensively document all activities, such as daily business and investments, of your fiscal year. The aim is to ensure that all stakeholders, such as employees and other interested parties, are informed about the financial situation and business activities of your company.
What exactly needs to be included in an annual report depends on the type of company, the turnover and the size of the company. The fact remains: The annual report is a powerful marketing tool to present your numbers and communicate your message. It is no longer just a compilation of the management report, the annual financial statements and, if applicable, the consolidated financial statements.
Whether there is a legal obligation to prepare an annual report and what all must be included is defined by a company’s accounting obligation. According to Swiss law Art. 957 para. 1 CO, the following companies are obliged to keep books and accounts:
- Sole proprietorships and partnerships with a turnover of at least CHF 500,000 in the last financial year
- Legal entities such as stock corporations, limited liability companies, cooperatives, associations and foundations
Many companies go beyond their legal obligations and publish their annual report even though they are not required to do so. This has to do with the annual report as an image and marketing tool.
As mentioned, many companies publish their annual reports of their own accord. But there are also legal regulations governing which companies must publish their annual reports and to what extent.
Listed companies, i.e. companies that can be traded on the stock exchange, as well as companies that have bond issues outstanding, must publish their annual financial statements and consolidated financial statements. This means that they must publish them in the Swiss Official Gazette of Commerce or send them to any person who requests them during a period of one year (Art. 958e para. 1 CO).
You can keep your annual report very short and only work through the legal content. Or you can fill it with voluntary content until it is no longer clear that it is actually an annual report. What you decide is up to you. But one general piece of advice remains: overview.
Your annual report must be clearly structured. Get inspiration from other companies in your industry or sit down with experts to find a good start.
When it comes to the content and structure of your annual report, you should first and foremost follow the legal requirements. Have experts check that you really have everything together so as not to provoke any consequences.
Once the legal issues have been clarified, you can move on to the interesting part. Never forget that your annual report is a way to convince stakeholders, employees, potential candidates and applicants of your company. So make sure that you market your company correctly in the content.
The mandatory disclosures for the annual report include the following parts:
- Financial statements
- Balance sheet
- Income statement
- Cash flow statement
- Management Report
- Consolidated financial statements (if applicable)
For companies that are required by law to have an ordinary audit, there is more mandatory content in the annual report than for SMEs, for example. Companies are required to have an ordinary audit if they meet at least two of the following criteria in two consecutive financial years:
- Balance sheet total of at least 20 million francs
- Sales revenue of at least 40 million Swiss francs
- At least 250 full-time positions on an annual average
Important to mention: Some corporate governance information must also be disclosed for the purpose of transparency to shareholders and investors.
The annual financial statement – increasingly also called financial report – shows the financial results of the business year. The annual financial statements usually include the balance sheet, notes and income statement. If a company is subject to auditing, then the cash flow statement is also included.
The biggest goal of the annual financial statement is to provide an overview. With it, audits run much more smoothly and the readers of your annual report can really understand what has happened in your business year.
The balance sheet presents the assets and liabilities of a company. It thus provides a snapshot of a company’s financial position. Normally, the reporting date of a balance sheet is December 31, the last day of the financial year. In Switzerland, the balance sheet is subject to a minimum classification pursuant to Art. 959a of the Swiss Code of Obligations.
The assets describe the assets of a company. In other words, everything that a company can liquidate, i.e. convert into cash. Assets include current assets and fixed assets. In this context, items in current assets are short-lived. This means that they are quickly converted into other assets. Fixed assets concern long-lived items such as furniture or real estate.
Liabilities concern the liabilities of a company. In other words, a company’s debts and financing. Or simply put, liabilities describe a company’s capital. Debt capital includes all debts that a company has. All items in debt capital must therefore be repaid. Equity, as the name suggests, belongs to the company itself.
The following example is highly simplified. It serves only as an explanatory aid.
Let’s assume we sell apples at a stand. Then, on the balance sheet, we most certainly have an inventory for the apples and a cash account for our cash. Perhaps we have taken out a loan for our goods and cash, in which case we also have an item in borrowed capital. And with that, our small balance sheet is already complete.
In the balance sheet of our apple stand, however, we have not even recorded the rental costs for our stand. And that’s where we run into a problem, because the stand doesn’t belong to us, so it’s not part of our furniture stock. The balance sheet alone cannot help us, but that is not its task. It is the inventory of assets and liabilities, but now we need something to document our economic activities: the income statement.
The income statement, also called profit and loss statement, describes the profits and losses of a company.
What makes the income statement popular? You can compare the income (revenue) and expenses (costs) for any period of time and find out whether a company has made a profit or a loss.
This allows us to record the income from the apple sale as revenue and the expenses for the stand as expenses and keep a clean accounting.
With the income statement, we can easily and correctly book the rental expense. As already mentioned, clarity is the be-all and end-all in accounting. Therefore, we also book all purchases and sales of our apples with income and expense accounts.
The income statement also has a legal minimum structure according to Art. 959b OR.
Cash flow statement
Again at our stand. We sell more and more apples and to transport them we buy a small delivery truck from the money in our cash register. Let’s book it correctly with expense and inventory accounts and we are done. At the end of the day an investor comes by and looks at our numbers. Even though we sold more, we have less money in the cash register. Of course, we can explain the van to her, but there is an even simpler solution: the cash flow statement.
The cash flow statement focuses on a company’s cash and cash equivalents. Typically, these are postal, bank and cash accounts. Cash and cash equivalents are there to cover short-term debt and thus keep a company liquid.
As a cause statement, the cash flow statement explains how liquidity situations arose. In our case, the investor’s cash flow statement clearly shows that the decrease in cash and cash equivalents stems from the purchase of the van.
The cash flow statement must be divided into a business area, an investment area and a financing area (Art. 961b OR).
The business area is about income and expenses in the normal course of business. In our case, this would be the purchase and sale of apples and the stand rental.
The investment area concerns the purchase and sale of fixed assets. Like the purchase of our delivery truck.
And the financing area is about the change in financial liabilities. For example, do we take out another loan or do we pay off our loan.
The notes to the financial statements are an extension and serve to explain the components of the financial statements in accordance with Art. 959c CO.
Which accounting principles have you followed? What exactly are the items in the balance sheet and income statement? You must answer such questions in the notes.
The annual financial statements do not fully document a company’s financial year. This is where the management report comes into play.
The management report is a supplement to the annual financial statements. It is a detailed report that provides information on the economic situation of a company. The legal requirements for the management report relate to the following topics and key figures (Art. 961c Para. 2):
- Average number of full-time positions during the year
- Performance of a risk assessment
- Ordering and order situation
- Research and development activities
- Extraordinary events
- Future prospects
It is now normal for companies to supplement the statutory content of the management report with other aspects.
Consolidated Financial Statements
If a company consists of several companies, such as a company with subsidiaries, then it is obliged to prepare consolidated financial statements in accordance with Art. 963 of the Swiss Code of Obligations.
A consolidated financial statement is nothing other than a consolidated, i.e. merged, financial statement of all controlled companies. Ultimately, it should appear as if all these companies were just one single company.
If you have all the mandatory content in your annual report, you are legally covered. But as mentioned, companies use the annual report to present themselves and what they have achieved in the year. That’s why most annual reports also contain additional content. Here, we will look at the most common voluntary content.
- Letter to shareholders
- Key figures
- Corporate governance
- Sustainability report
Letter to shareholders
The Shareholders’ Letter has established itself as mandatory social content – and rightly so!
Usually placed prominently on the first page, the CEO or Chairman of the Board of Directors addresses his words directly to the readers in the shareholders’ letter.
The content covers important events of the last financial year and an initial outlook for the future. Hurdles and challenges are addressed, important key figures are mentioned for the first time, and aspirations for the coming years are disclosed.
Right from the start, the shareholders’ letter is an opportunity to establish a connection with readers. A well thought-out and formulated shareholder letter gets off to the perfect start.
The introduction is normally taken from the shareholders’ letter. But there is nothing against adding a few supplements.
For example, you can include a picture gallery in the introduction. Or you can review the past year with photos and short descriptions of the most important projects.
The important thing is that the overview doesn’t suffer and readers don’t suddenly have to wonder whether they’ve missed the table of contents.
The mandatory content of every annual report is numbers. And every figure that is relevant to the annual report can be found somewhere in it. If a reader wants to know your annual sales, he or she can simply go to the financial statements and look for it.
But we go beyond the mandatory content. That’s why we believe your annual report needs a section for key figures. This can be one or more pages, although one should be enough.
The most important key figures at a glance – that must be your goal. There is almost no reader who would ignore such a page. So use the opportunity again to present the most important points of your business year properly.
Corporate governance is often translated as company management. This is not complete, because corporate governance revolves around the principles of corporate control and management.
In this section, you transparently disclose to your stakeholders how your company is managed and monitored. Common questions in this section are:
- How is the company structured?
- Who is the largest shareholder?
- What is the share capital structure?
- Who is on the board of directors/management?
- What are their duties and responsibilities?
- How is the compensation for the board of directors and the management board regulated?
- What are the restrictions on voting rights?
- How does the company handle audits?
- What does the company publish?
Not surprisingly, no international definition of corporate governance, and what it encompasses, has been found to date.
Again, it is important that you see your opportunity to present your corporate philosophy to potential prospects.
Sustainability is now a trend and a duty everywhere. This is why most companies include their sustainability report in their annual report. It is also often the case that companies create and maintain the sustainability report separately from the annual report.
In this report, a company focuses on sustainability in the economic, environmental and social areas. Here you can specifically highlight the projects or activities that embody the sustainability aspect most strongly in your opinion. You can also explain your corporate philosophy or vision in the context of sustainability and show how the connection will look in the future.
We’ve already covered everything that needs to be included in your annual report. Now we want to focus more on the question of what you should pay attention to in general. You must not forget that your annual report is your chance to present your business year to your customers, investors, employees or even your bank.
- Proper text
- The emotional character
- Save in the wrong place
- The red thread
- Overview, overview, overview
- The right design
As with any text, your annual report should be easy to understand.
Fortunately, your annual report has exactly the same copywriting requirements as any other newsletter, newspaper article or blog post. Therefore, you can pay attention to the same things:
- Alternate between short and long sentences
- Use understandable language
- Do not/do not use a lot of convolutions
- Always prefer active sentences to passive ones
- Avoid repetitions
The emotional character
Everyone knows advertisements that build on emotions. They are sad or perhaps overly happy. No matter what emotion they radiate, they trigger something in us – goal achieved.
The emotional aspect of content is approached primarily with storytelling. It’s how your texts and figures come to life. Good storytelling involves texts, graphics, illustrations, photos, schematics, simply everything.
We’re not saying turn your annual report into a fairy tale where the grandmother tells red and black counts from her granddaughters. Whereas. That would be a pretty good idea. For a broad audience, that’s exactly what could be appealing and underscore the emotional value of your company. But we digress. Humanize your annual report. Include statements or stories from employees, for example. They can, for example, reflect the corporate philosophy in their own words or introduce individual company divisions.
Very important: The emotional aspect must come naturally. If it seems forced, it will not be convincing or even perceived as false.
Save in the wrong place
An annual report means a lot of work. A template from previous years can save you work. But this is both an opportunity and a problem. A layout you trust is important. So we don’t blame anyone here for reusing a successful design. But it is important to find the right moment to renew.
We maintain a philosophy of continuous improvement. This means that we regularly review our methods, services and designs. If something doesn’t meet our standards, we adjust it.
You should do the same for your annual report. Every year, look at last year’s report and decide if it still represents your company or not.
Aside from the overall look, be careful with details as well. Leave photos and graphics to experts only; no one wants pixelated faces or blurry axis titles. And have people with design experience take a look at font size and line spacing. Little things can very quickly make a big difference in the reading experience.
The red thread
Although the annual report is only a compulsory pile of paper, we have already noted how much more you can get out of it. Important for this undertaking: the red thread. A lot has to do with structure, but more on that later.
In our case, the red thread concerns the overall impression of your annual report. Do you want to emphasize the emotional character? Then a dry introduction with mandatory content makes little sense. Readers should see your annual report as a coherent work and not as a series of chapters. Important for this: the leitmotif.
Many companies dedicate their annual report to a leitmotif or a slogan. This should be recognizable in the structure, presentation and tone of the report. This is a proven method of creating a common thread.
Overview, overview, overview
Your annual report will fill several pages and address several topics. The most important element in this situation is clearly the overview. Readers must be able to navigate easily and intuitively.
A good structure provides a good overview. The first orientation is always provided by the table of contents. If something seems unclear to you or you don’t know where you would look for a specific topic or for a specific key figure, then it needs to be adjusted. If you can find your way around your table of contents and recognize the common thread, then you are on the right track.
With the table of contents, the structure is done and a rough overview is guaranteed. Now you may apply the same method to each chapter, subchapter, sub-subchapter, sub-sub-subchapter, and so on. Here, it’s all about details. So, what is mentioned in which paragraph? Where should the graphic go so as not to disrupt the flow of reading and at the same time stay with the relevant part of the text? You need to clarify such questions here.
The right design
We’ve already talked about the right emotions of your annual report and how you can achieve just that with proper copywriting. And we’ve addressed the overview so that readers can find their way around. Now it’s time for the right design.
Design supports your overall concept. So for us as a design agency, this is clearly a matter of the heart. With the right design, you make your annual report clearer and more intuitive. The right colors, shapes and illustrations will also help you to arouse the desired emotions.
But the right design is not just about the placement of graphics, the layout of individual pages or the choice of color palette; media also play a role. In the age of digitalization, don’t settle for PDF documents. They serve their purpose and provide clear information – it’s hard to imagine the future without them. But landing pages, interactive infographics and web design in general offer you unlimited opportunities to present targeted information to selected audiences.
Imagine a website built just for your investors. They will find exactly the information that is important to them and won’t be distracted by the rest of the content.
A very good example is the digital sustainability report of BEKB. You can take a look at it yourself right here. What does the digital version bring? A broad audience and a clear signal in the direction of digitization.
The annual report has evolved from a dry, compulsory task into a marketing tool. The reason for this is the realization that figures alone are no longer sufficient as a basis for investment in any industry. Investors want to know more about the companies they invest in. More relates to economic aspects, but also to human aspects.
Annual reports should not simply please investors, they should embody the company as a whole. The vision, the corporate philosophy, everything should flow into the annual report.
The design has also changed considerably. PDF documents are still the standard, but more and more companies are taking advantage of digital options like landing pages and interactive infographics, or relying on web design agencies to transport the entire annual report into the digital world.
Pay attention to the legal requirements and present your company, then you are already on the right track.
For convenience purposes this post has been translated automatically.