What Is an Annual Report?

An annual report is a document that public corporations must provide annually to shareholders that describes their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos, and an accompanying narrative, all of which chronicle the company’s activities over the past year and may also make forecasts about the future of the company. The back part of the report contains detailed financial and operational information.

Understanding Annual Reports

Annual reports became a regulatory requirement for public companies following the stock market crash of 1929 when lawmakers mandated standardized corporate financial reporting. The intent of the required annual report is to provide public disclosure of a company’s operating and financial activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to evaluate the firm’s financial performance and to make investment decisions.

Typically, an annual report will contain the following sections:

In the U.S., a more detailed version of the annual report is referred to as Form 10-K and is submitted to the U.S. Securities and Exchange Commission (SEC). Companies may submit their annual reports electronically through the SEC’s EDGAR database. Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors. Under the proxy rules, reporting companies are required to post their proxy materials, including their annual reports, on their company websites.

Special Considerations

The annual report contains key information on a company’s financial position that can be used to measure:

• A company’s ability to pay its debts as they come due
• Whether a company made a profit or loss in its previous fiscal year
• A company’s growth over a number of years
• How much of earnings are retained by a company to grow its operations
• The proportion of operational expenses to revenue generated

The annual report also determines whether the information conforms to the generally accepted accounting principles (GAAP). This confirmation will be highlighted as an “unqualified opinion” in the auditor’s report section.

Fundamental analysts also attempt to understand a company’s future direction by analyzing the details provided in its annual report.

Mutual Fund Annual Reports

In the case of mutual funds, the annual report is a required document that is made available to a fund’s shareholders on a fiscal year basis. It discloses certain aspects of a mutual fund’s operations and financial condition. In contrast to corporate annual reports, mutual fund annual reports are best described as “plain vanilla” in terms of their presentation.

A mutual fund annual report, along with a fund’s prospectus and statement of additional information, is a source of multi-year fund data and performance, which is made available to fund shareholders as well as to prospective fund investors. Unfortunately, most of the information is quantitative rather than qualitative, which addresses the mandatory accounting disclosures required of mutual funds.

All mutual funds that are registered with the SEC are required to send a full report to all shareholders every year. The report shows how well the fund fared over the fiscal year. Information that can be found in the annual report includes:

• Table, chart, or graph of holdings by category (e.g., type of security, industry sector, geographic region, credit quality, or maturity)
• Audited financial statements, including a complete or summary (top 50) list of holdings
• Condensed financial statements
• Table showing the fund’s returns for 1-, 5- and 10-year periods
• Management’s discussion of fund performance
• Management information about directors and officers, such as name, age, and tenure
• Remuneration or compensation paid to directors, officers, and others

The Bottom Line

Public companies must produce annual reports to show their current financial conditions and operations. Annual reports can be used to examine a company’s financial position and, possibly, understand what direction it will move in the future. These reports function differently for mutual funds; in this case, they are made available each fiscal year and are typically simpler.

What Is an Annual General Meeting (AGM)?

An annual general meeting (AGM) is a yearly gathering of a company’s interested shareholders. At an AGM, the directors of the company present an annual report containing information for shareholders about the company’s performance and strategy.

Shareholders with voting rights vote on current issues, such as appointments to the company’s board of directors, executive compensation, dividend payments, and the selection of auditors.

How an Annual General Meeting (AGM) Works

An annual general meeting, or annual shareholder meeting, is primarily held to allow shareholders to vote on both company issues and the selection of the company’s board of directors. In large companies, this meeting is typically the only time during the year when shareholders and executives interact.

The exact rules governing an AGM vary according to jurisdiction. As outlined by many states in their laws of incorporation, both public and private companies must hold AGMs, though the rules tend to be more stringent for publicly traded companies.

Public companies must file annual proxy statements, known as Form DEF 14A, with the Securities and Exchange Commission (SEC). The filing will specify the date, time, and location of the annual meeting, as well as executive compensation and any material matters of the company concerning shareholder voting and nominated directors.

Annual general meetings (AGMs) are important for the transparency they provide, the ability to include shareholders, as well as bringing management to accountability.

Qualifications for an Annual General Meeting (AGM)

The corporate bylaws that govern a company, along with its jurisdiction, memorandum, and articles of association, contain the rules governing an AGM. For example, there are provisions detailing how far in advance shareholders must be notified of where and when an AGM will be held and how to vote by proxy. In most jurisdictions, the following items, by law, must be discussed at an AGM:

• Minutes of the previous meeting: The minutes of the previous year’s AGM must be presented and approved.
• Financial statements: The company presents its annual financial statements to its shareholders for approval.
• Ratification of the director’s actions: The shareholders approve and ratify (or not) the decisions made by the board of directors over the previous year. This often includes the payment of a dividend.
• Election of the board of directors: The shareholders elect the board of directors for the upcoming year.

Additional Topics Covered at an Annual General Meeting (AGM)

If the company has not been performing well, the AGM is also when shareholders can question the board of directors and management as to why performance has been poor. The shareholders can demand satisfactory answers as well as to inquire about the strategies that management plans to implement to turn the company around.

The AGM is also when shareholders can vote on company matters other than electing the board of directors. For example, if management is contemplating a merger or an acquisition, the proposal can be presented to the shareholders and they can vote on whether or not the company should proceed.

Several other elements may be added to an AGM agenda. Often, the company’s directors and executives use an AGM as their opportunity to share their vision of the company’s future with the shareholders. For example, at the AGM for Berkshire Hathaway, Warren Buffett delivers long speeches on his views of the company and the economy as a whole.

Berkshire Hathaway’s annual gathering has become so popular that it is attended by tens of thousands of people each year, and it’s been dubbed the “Woodstock for Capitalists.”

What Is an 8-K?

An 8-K is a report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the Securities and Exchange Commission (SEC). Also known as a Form 8K, the report notifies the public of events, including acquisitions, bankruptcy, the resignation of directors, or changes in the fiscal year.

Understanding Form 8-K

An 8-K is required to announce significant events relevant to shareholders. Companies usually have four business days to file an 8-K for most specified items.

Documents fulfilling Regulation Fair Disclosure (Reg FD) requirements may be due before four business days have passed. An organization must determine if the information is material and submit the report to the SEC. The SEC makes the reports available through the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) platform.

The SEC outlines the various situations that require Form 8-K. There are nine sections within the Investor Bulletin. Each of these sections may have anywhere from one to eight subsections. The most recent permanent change to Form 8-K disclosure rules occurred in 2004.

Benefits of Form 8-K

First and foremost, Form 8-K provides investors with timely notification of significant changes at listed companies. Many of these changes are defined explicitly by the SEC. In contrast, others are simply events that firms consider to be sufficiently noteworthy. In any case, the form provides a way for firms to communicate directly with investors. The information provided is not filtered or altered by media organizations in any way. Furthermore, investors do not have to watch TV programs, subscribe to magazines, or even wade through financial news websites to get the 8-K.

Form 8-K also provides substantial benefits to listed companies. By filing an 8-K in a timely fashion, the firm’s management can meet specific disclosure requirements and avoid insider trading allegations. Companies may also use Form 8-K to notify investors of any events that they consider to be important.

Finally, Form 8-K provides a valuable record for economic researchers. For example, academics might wonder what influence various events have on stock prices. It is possible to estimate the impact of these events using regressions, but researchers need reliable data. Because 8-K disclosures are legally required, they provide a complete record and prevent sample selection bias.

Criticism of Form 8-K

Like any legally required paperwork, Form 8-K imposes costs on businesses. There is the cost of preparing and submitting the forms, as well as possible penalties for failing to file on time. Although it is only one small part of the problem, the need to file Form 8-K also deters small companies from going public in the first place. Requiring companies to provide information helps investors make better choices. However, it can reduce their investment options when the burden on businesses becomes too high.

Requirements for Form 8-K

The SEC requires disclosure for numerous changes relating to a registrant’s business and operations. Changes to a material definitive agreement or the bankruptcy of an entity must be reported. Other financial information disclosure requirements include the completion of an acquisition, changes in the firm’s financial condition, disposal activities, and substantial impairments. The SEC mandates filing an 8-K for the delisting of a stock, failure to meet listing standards, unregistered sales of securities, and material modifications to shareholder rights.

An 8-K is required when a business changes accounting firms used for certification. Changes in corporate governance, such as control of the registrant or amendments to articles of incorporation, need to be reported. Changes in the fiscal year and modifications of the registrant’s code of ethics must also be disclosed.

The SEC also requires a report upon the election, appointment, or departure of a director or specific officers. Form 8-K must be used to report changes related to asset-backed securities. The form may also be used to meet Regulation Fair Disclosure requirements.

Form 8-K reports may be issued based on other events up to the company’s discretion that the registrant considers to be of importance to shareholders.

What Is Adjusted Gross Income (AGI)?

Adjusted gross income (AGI) is the figure that the Internal Revenue Service (IRS) uses to determine your income tax liability for the year. It is calculated by subtracting certain adjustments from gross income, such as business expenses, student loan interest payments, and other expenses. After calculating a taxpayer’s AGI, the next step is to subtract deductions to determine their taxable income.

The IRS also uses other income metrics, such as modified AGI (MAGI), for specific programs and retirement accounts.

Understanding Adjusted Gross Income (AGI)

As prescribed in the United States tax code, AGI is a modification of gross income. Gross income is simply the sum of all the money you earned in a year, which may include wages, dividends, capital gains, interest income, royalties, rental income, alimony, and retirement distributions, before tax or other deductions. AGI makes certain adjustments to your gross income to reach the figure on which your tax liability will be calculated.

Many U.S. states also use the AGI from federal returns to calculate how much individuals owe in state income taxes. States may modify this number further with state-specific deductions and credits.

Common Adjustments

The items subtracted from your gross income to calculate your AGI are referred to as adjustments to income, and you report them on Schedule 1 of your tax return when you file your annual tax return. Some of the most common adjustments are listed here, along with the separate tax forms on which a few of them are calculated:

• Alimony payments (for divorces filed before Jan. 1, 2019)
• Early withdrawal penalties on savings
• Educator expenses
• Employee business expenses for armed forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses (Form 2106)
• Health Savings Account (HSA) deductions (Form 8889)
• Moving expenses for members of the armed forces (Form 3903)
• Self-employed Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), and qualified plans
• Self-employed health insurance deduction
• Self-employment tax (the deductible portion)
• Student loan interest deduction

How to Calculate Adjusted Gross Income

If you use software to prepare your tax return, it will calculate your AGI once you input your numbers. If you calculate it yourself, you’ll begin by tallying your reported income for the year. That might include job income, as reported to the IRS by your employer on a W-2 form, plus other income, such as dividends and miscellaneous income, reported on 1099 forms.

Next, you add any taxable income from other sources, such as profit on the sale of a property, unemployment compensation, pensions, Social Security payments, or anything else that hasn’t already been reported to the IRS. Many of these income items are also listed on IRS Schedule 1.

The next step is to subtract the applicable adjustments to the income listed above from your reported income. The resulting figure is your AGI. To determine your taxable income, subtract either the standard deduction or your total itemized deductions from your AGI. In most cases, you can choose whichever gives you the most benefit.

For example, the standard deduction for tax returns for married couples filing jointly was $25,900 in 2022, rising to $27,700 in 2023, so couples whose itemized deductions exceed that amount would generally opt to itemize, while others would take the standard deduction.

The IRS provides a list of itemized deductions and the requirements for claiming them on its website. Your AGI also affects your eligibility for many of the deductions and credits available on your tax return. In general, the lower your AGI, the more significant the number of deductions and credits you will be eligible to claim, and the more you’ll be able to reduce your tax bill.

An Example of AGI Affecting Deductions

Let’s say you had some significant dental expenses during the year that weren’t reimbursed by insurance, and you’ve decided to itemize your deductions. You are allowed to deduct the portion of those expenses that exceed 7.5% of your AGI.

This means that if you report $12,000 in unreimbursed dental expenses and have an AGI of $100,000, you can deduct the amount that exceeds $7,500, which is $4,500. However, if your AGI is $50,000, the 7.5% reduction is just $3,750, and you’d be entitled to deduct a larger amount of that $12,000, in this case $8,250.

Adjusted Gross Income (AGI) vs. Modified Adjusted Gross Income (MAGI)

In addition to AGI, some tax calculations and government programs call for using what’s known as your modified adjusted gross income, or MAGI. This figure starts with your AGI, then adds back certain items, such as any deductions you take for student loan interest or tuition and fees.

Your MAGI is used to determine how much, if anything, you can contribute to a Roth individual retirement account (Roth IRA) in any given year. It is also used to calculate your income if you apply for Marketplace health insurance under the Affordable Care Act (ACA).

Many people with relatively uncomplicated financial lives find that their AGI and MAGI are the same number or very close.

Adjusted Gross Income vs. Gross Income vs. Taxable Income

Your gross income is all of the money you’ve earned in a year that isn’t exempt from taxation. This can be in the form of salary, wages, interest, dividends, capital gains, and so on.

Your adjusted gross income takes that amount and takes out certain qualified expenses and adjustments.

Taxpayers can then take either the standard deduction for their filing status or itemize the deductible expenses they paid during the year. You’re not permitted to both itemize deductions and claim the standard deduction. The result is your taxable income.

Frequently Asked Questions

The Bottom Line

Adjusted gross income, or AGI, is your gross income after it has been adjusted for certain qualified deductions that are permitted by the Internal Revenue Service (IRS). These qualified deductions reduce an individual’s gross income, thus reducing the taxable income that they will ultimately have to pay taxes on. You can save money come tax season by lowering your AGI, which will lower your taxable income, in turn. However, many of the adjustments allowed for AGI are specific for particular circumstances that may not apply to everyone.