Definition
“Highlights” in the context of accounting and financial reporting refer to the brief summaries of key financial information that are given prominence in the annual accounts and report of a company. These highlights are usually presented at the beginning of the financial document and are designed to quickly convey the most critical metrics and financial performance indicators of the company for the current and previous financial years.
Examples
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Sales Revenue:
- The total amount of money generated from sales of goods or services.
- Example: “The company’s sales revenue for FY 2022 was $5 million, a 10% increase from $4.5 million in FY 2021.”
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Profits:
- The financial gain made after deducting all expenses.
- Example: “Our net profit increased by 15%, from $1 million in FY 2021 to $1.15 million in FY 2022.”
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Earnings Per Share (EPS):
- A company’s profit divided by the outstanding shares of its common stock.
- Example: “Earnings per share grew from $2.50 in FY 2021 to $2.75 in FY 2022.”
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Dividend:
- A portion of a company’s earnings distributed to shareholders.
- Example: “The dividend per share for FY 2022 was $1, up 5% from $0.95 in FY 2021.”
Frequently Asked Questions (FAQs)
What is the purpose of financial highlights in an annual report?
The purpose is to provide a concise summary of a company’s financial performance, making it easier for shareholders, investors, and other stakeholders to quickly grasp key metrics without going through the entire report.
Are there regulations governing the content of financial highlights?
No, there are no strict regulations governing the form and content of financial highlights. Companies have considerable flexibility, although it is common practice to include metrics such as sales revenue, profits, earnings per share, and dividends.
How do financial highlights differ from the full annual report?
Financial highlights offer a summary and quick insights into the company’s performance for the fiscal year, whereas the full annual report presents detailed financial statements, management’s discussion, and analysis, and comprehensive notes on the company’s financial activities.
Can investors solely rely on financial highlights for making investment decisions?
While financial highlights provide a quick snapshot of a company’s performance, they are not sufficient for making well-informed investment decisions. Thorough analysis often requires reviewing the detailed financial statements and understanding the company’s overall financial health, strategies, and market conditions.
Where can financial highlights typically be found in an annual report?
Financial highlights are usually located at the beginning of an annual report, often in the executive summary or a dedicated section labeled as “Financial Highlights.”
Related Terms with Definitions
Annual Report
A comprehensive report on a company’s activities throughout the preceding year, intended to give shareholders and other interested parties information about the company’s financial performance.
Sales Revenue
The total amount of income generated by the sale of goods or services related to the company’s primary operations.
Profits
The financial gain realized when the amount of revenue gained exceeds the expenses, costs, and taxes needed to sustain the activity.
Earnings Per Share (EPS)
A measure of a company’s profitability that is calculated by dividing the company’s net income by its outstanding shares of common stock.
Dividend
A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.
Online References
- Investopedia - Financial Highlights
- SEC - Annual Reports
- Corporate Finance Institute - Key Financial Metrics
Suggested Books for Further Studies
- “Financial Statement Analysis and Security Valuation” by Stephen H. Penman
- “The Basics of Understanding Financial Statements” by Mariusz Skonieczny
- “Financial Accounting: Tools for Business Decision Making” by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso
