The Chairman outlines the activities and financial conditions of the firm in the previous year followed by his/her discussion on hopes and future plans for the firm. In this part of the annual report, the Chairman attempts to explain why the company’s operations resulted in the results mentioned and why it chooses to advance with new projects or policies. In a nutshell, the statement or report is mainly a promise or explanation for company activities by the Chairman and its Board of Directors to the stockholders.
However, the questions are: Why do they need the reports? What do the stockholders do with them? And more importantly, what do they do to deserve an explanation? To answer these questions, one has to firstly understand the concept of stockholder’s equity. When an individual goes to the market and buys stocks, he/she basically buys ownership! A corporation is basically a public-owned enterprise. By declaring itself a corporation, the company or enterprise is selling itself to the public. This is done by the company to essentially generate more money and finances. When it becomes a corporation, the company is actually giving the stockholders a right or privilege to vote for the Board of Directors. The elected Board of Directors is then responsible to make decisions about the company and see where and
how the company can maximize the profits. The stockholders then gain from the profits. The stockholders do not directly earn the profit but are given dividends instead. These dividends are paid annually, every year except when the company is going in loss to an extent that it even fails to pay back the liabilities it has borrowed. At such times, the liabilities are preferred and paid first and the remaining is given as dividends to the stockholders.
To further understand the relationship between the company and the stockholders, Walt Disney Corporation will be used as a case for analysis and descriptive explanation. But, before