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Components of annual report

You have been promoted to a member of the management team in Fullhealth's financial department. You have hired a new staff member who is to assist you in preparing materials for the next Board of Directors meeting in which the annual financial reports will be presented.

Write an e-mail to your new employee that explains the components and the process of creating an annual report. Focus strongly on how accounting inputs are formulated into financial reports and statements for the organization. The memo should include three of the following annual reporting components:

Chairman of the Board Letter
sales and marketing
10-year summary of financial figures
management discussion and analysis
CPA opinion letter
financial statements (balance sheet, check sales, profits, R&D spending, inventory and debt levels over time)
subsidiaries, brands, and addresses
list of directors and officers
market cap = number of shares x share price
price to book = market cap / shareholders' funds
price to sales = market cap / annual sales
profit margin = profit after tax / annual sales
P/E ratio = market cap / profit after tax
gearing = net debt / shareholders' funds
Enterprise Value (EV) = market cap plus debt (or minus cash)
EV / cash flow = Enterprise Value / operating cash flow

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You have been promoted to a member of the management team in Fullhealth's financial department. You have hired a new staff member who is to assist you in preparing materials for the next Board of Directors meeting in which the annual financial reports will be presented.

Write an e-mail to your new employee that explains the components and the process of creating an annual report. Focus strongly on how accounting inputs are formulated into financial reports and statements for the organization. The memo should include three of the following annual reporting components:

Chairman of the Board Letter
sales and marketing
10-year summary of financial figures
management discussion and analysis
CPA opinion letter
financial statements (balance sheet, check sales, profits, R&D spending, inventory and debt levels over time)
subsidiaries, brands, and addresses
list of directors and officers
market cap = number of shares x share price
price to book = market cap / shareholders' funds
price to sales = market cap / annual sales
profit margin = profit after tax / annual sales
P/E ratio = market cap / profit after tax
gearing = net debt / shareholders' funds
Enterprise Value (EV) = market cap plus debt (or minus cash)
EV / cash flow = Enterprise Value / operating cash flow

Annual report is the important document of communication to the stakeholders. We will discuss following elements:
1) P/E ratio = Market Price / EPS
P/E ratios are a useful indicator and tool when performing valuation and comparing firms. If the ratio is unusually high or low for a firm in relation to its industry, an analyst is likely to suspect that the stock is overvalued or undervalued. This ratio tends to be high in firms that have good future growth prospects. Let us discuss the various situations:
1) High risk companies: Low dividend distribution and high price-earning ratio. As they will use the profits for further expansion
2) Companies that have recently experienced a temporary decline in profits.
High dividend distribution and low price-earning ratio to maintain confidence of the shareholders
3) Companies that expect to experience a decline in profits.
Low dividend distribution and low price earning ratio as they will have low profits
4) Growth companies with valuable future investment opportunities.
Low dividend distribution and high price-earning ratio as they will use the profits ...

Solution Summary

This explains the components of annual report by taking the case of HomeDepot

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