An annual report is a formal document that public-listed companies much publish once a year. The main purpose of the annual report is for the company to inform its shareholders and potential investors how it has performed over the past 12 months. For potential investors, the annual report provides important information that can be used to assess if a company is worthwhile investing in.

The back portion of the annual report is usually filled with financial information about the company. The board of directors or the equivalent governing body is responsible for the preparation and presentation of the company's financial statements. A complete set of financial statements should include:

The financial statements will give an overall picture of the company's financial well-being, while the front section will probably tell you about the company's strategies, products and competitive positioning. This information may be incorporated into the chairman's statement or message to shareholders.
Professional analysts and accountants would look at the audit committee's report. There is also an independent auditor's report that should clearly set out the auditor's opinion on the presentation of the financial statements of the company's financial position and the result of its operations. Look out for any areas of concern that might be highlighted here and they should be questioned.

Remember though that the annual report is produced only once a year, so when researching a company, it is important to look at other documents such as the quarterly reports, the company's websites and also research reports provided by stockbroking houses.