Analyzing Annual Reports Paper Example

A company's annual report is a complex report on the activities as carried out in the preceding year. The yearly reports are projected to give to the company owners, the shareholders, and any other interested parties the information about the activities of the company and its financial performance (Notes, 2009). It should be understood that it is legally required for companies to prepare and disclose their annual reports and it is required to be deposited at the company's registry. Additionally, depending on the rules of the stock exchange, companies that are listed on a stock exchange are required to report their annual reports frequently.

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In analyzing the annual reports of the companies, I looked at annual reports of the two companies, Abercrombie & Fitch Co. which specializes primarily sell its products directly to consumers and also through store alongside making sales in various wholesales. The company deals in apparel products which include graphic t-shirts, knit tops, sweaters, jeans, outwear, woven shirts among others and personal care products (Ballou et al., 2006). Another company is the Gap Inc. which is one of the leading apparel retail companies. The company offers apparel, accessories, and personal care products for children under the Gap, women, banana republic, Athleta, Intermix Brands, and Old Navy.

Firstly, the report compared the four basic financial statement of the two companies. The statements compared in the story are; Consolidated Balance Sheet, Consolidated Statement of Income, Consolidated Statements of Stockholders' Equity and Consolidated Statement of Cash Flows. In firstly looking at the Consolidated Balance Sheets for the two companies, it is evident that the Gap Inc. total asset for the period ended January 28th, 2017 is $7610 which is relatively lower as compared to the total assets of Abercrombie Company whose total assets stood at $ 2295757. This indicates that Abercrombie is a more established company than Gap Inc. (Notes, 2009). It is therefore observed that Abercrombie Company made a loss of $ 137282 when compared with the previous financial year that ended on January 30th, 2016. Gap Company, however, made a profit of about $ 137 when the two financial periods were compared.

Further, the Consolidated Statement of Income for the two companies was observed (Brennan, 2015). The statement majorly review the income received and expenses incurred during the accounting period. For example, for Abercrombie Company, the income before income taxes stood at $ 1124 in the period end 2016 while the income taxes were $ 448. This meant that the net income for the same financial year was $ 676. The various expenses are also shown in the balance including operating expenses which is deducted from gross profit to get the operating income. It is once again observed that in considering the two companies for the same financial periods, the Abercrombie Company whose net income stood at $ 57741 had a superior income balance as compared to Gap Inc. that only had a net income of $ 676.

The Consolidated Statement of Stockholders Equity shows the changes within the equity section of the balance sheet within a given period. The report provides additional information on the financial statements concerning equity related activities during the reporting period (Linsley & Shrives, 2006). In considering the two companies, the stock sales have been revealed as well as other repurchases by the companies. Finally, the report reviewed the Consolidated Statement of Cash Flows which shows the changes that occurred in a company's cash within a given period. For example, for Gap Inc. company, in the period ended 2016, the net cash provided by operating activities was $1719, net cash used for investment activities stood at $ 529, net cash used for financing activities was $ 777, and the cash and cash equivalents at the end of the period was 1783. This illustrates that statement of cash flow majorly deal with how company cash flows within a given period.

Conclusion

From the above and considering the information was given by the management regarding the process of running a company, it is true that there will be several risks that the company will be undergoing (Linsley & Shrives, 2006). The chances are virtually in all these two companies, and therefore, it is upon the management to craft ways through which they will be dealt with. Additionally, it is evident that these two companies are almost doing business in one line and that explains the reason as to why they adopted the same structure for drafting their financial statement even though Gap Inc. is a more superior company compared to Abercrombie $ Fitch company considering their financial net balances.

Reference List

Brennan, N. M. (2015). Consolidated Financial Statements. Wiley Encyclopedia of Management, 1-8.

Ballou, B., Heitger, D., & Landes, C. (2006). The rise of corporate sustainability reporting: A rapidly growing assurance opportunity. Journal of Accountancy, 202(6), 65-74.

Linsley, P. M., & Shrives, P. J. (2006). Risk reporting: A study of risk disclosures in the annual reports of UK companies. The British Accounting Review, 38(4), 387-404.

Notes, E. (2009). Consolidated Financial Statements. Fair values of marketable long-term investments and securities are based on the quoted market value.