Example Of Essay On Significance Of Strategic Report

[Implication of strategic report in annual report]

The requirement about including strategic report within the annual report is a strategy that intends to make users and shareholders more informed. The shareholders are an important part of a firm’s success and as the result need to be informed about the status of their investment. They require information about how the firm makes its money in the market. Besides, they also require to know about performance of the directors and how this may affect their investment. Henceforth, the integration of strategic repot makes annual report to directly be of benefit to a company’s users and shareholders when making their decision regarding investment. As the result, the need to access the usefulness of strategic report is important to help in determining how it impacts decision-making. With regards to this, real world example of companies’ annual report will be used to access the implication of strategic report therein. The two companies’ report to be used are Tesco and Marks and Spenser.
One of the major significance of strategic reports is that it allows the shareholders to carry out assessment of directors’ performance. This strategic report gives information showing how the directors have performed in the process of achieving success in the operation of the company. Information of directors’s performance of is of importance because the users of the annual report can use this in gauging the future performance of the company; hence they can determine the profitability of investing on the company’s stock. For Mark and Spenser, the report indicates “Our Food business had an outstanding year in a sector that continues to go through profound change”. This quote shows that the directors’ performance have been good, just as depicted in annual report showing 6.1% in underlying profit before tax, given that they were able to come up with strategies that promote success. As a result, the users will be readily attracted to investing in the stock because they have been convinced that the management of the company is effective.
In Tesco’s strategic report, it is indicated that the company’s management has not been good. It is quoted, “commercial income issue identified in September was a significant blow and has resulted in a SFO regulatory inquiry” (Tesco, p. 3). From this, the shareholders get the perception that the director’s performance has not been at par as shown in the annual report for the company, which shows that the group revenue decreased by 2.0% (Tesco, p. 70). However, the Group Chief Executive presents their intended strategies towards correcting the situation; thereby, giving confidence to the users of the annual report. The report asserts that the directors are building a strong relationship among them and with the shareholders to work towards remedying the situation (Deloitte, 2015, 98).
Apart from directors’ performance, the strategic report also ensures that entity’s objective, strategies and business model are made available for the users and shareholders. The shareholders need this information to help them in evaluating their investment decision whether it is in line with the objective and strategies of the company. Whenever a shareholder finds that the objective and strategies are ineffective from the strategic report, they will be in a better place of avoiding the venture. Before the requirement of strategic report, the users made blind decisions that they only realized after duration. For instance, Mark and Spenser Group Plc states the three major purpose of the board. One of them is, “we set out four strategic priorities to enable us to deliver our plan to become a leading, international multi-channel retailer” (M&S p. 6). This gives the shareholders the idea that the company strategizes on building a strong team who can work towards achievement of the planned objectives. The shareholders can relate this statement to the 3.4% increase observed in the UK food revenue in the report.
For Tesco, the strategic report also highlights the priorities of the company in the process of achieving success. One of the strategies is, “protecting and strengthening the balance sheet”. This indicates to the shareholders that the company is working towards ensuring that they increase the revenue of the company in the coming years. As a result, by relating this to the annual report, the shareholders get a glimpse of how the company is strategizing to achieve success in future. The strategic report for the two companies also presents the business models used by the companies in operations. For Tesco, it involves reaching out to customers, collaborating with suppliers and diversifying the working channels (Tesco, p.8). This allows the users to relate the performance to the model depicted. It can show whether the model used is steered towards assurance for profitability.
The presentation of strategic report also allows the shareholders to learn of the major trends and events that are affecting the firm (Campbell, 2008, 56). The report is required to present information regarding the uncertainties and major risks associated with the company’s operations. This is coupled by evaluation of the development and performance therein. In this way, the shareholders can gauge the implication of the risk on the company’s report. This assertion can be studied by accessing Tesco’s and M&S annual report. For Tesco, the principal risks are included to be related to customer, Financial strategy, Data security and privacy, transformation, competition and markets and finally performance (Tesco, p. 22-24). Among these, the report indicates that most of these risks are increasing and could therefore have an adverse effect on the annual report. However, the report also indicates major control and mitigating factors to help in containing the risk. The shareholders can use these information to gauge the magnitude to which these increasing risk relate to the company’s performance.
Among the source of principal risks highlighted by Mark and Spenser Group include food competition, GM margin, information security, food safety and customer management. However, the company has applied relevant mitigating activities to help in curbing these risks within the company. The ability of the company’s to manage these outstanding risk, as depicted in strategic report, indicates the strength of the company in the event of adversity to the shareholders (ACCA & Deloitte 2010, 78).
In conclusion, the strategic reports is an important section in the annual report. This is especially to the users and shareholders who would like to have a clear understanding of the annual report. From the strategic report, the users are able to relate the events within the company and its success or failure. As shown above, the significance of strategic report on how it provides useful information can be categorized into 3: information regarding the performance of the directors; information regarding the principal risk and information about entity’s objective; and information about the firm’s objective and strategies. From the example of Tesco and M&S Group Plc, it comes out that strategic report is important for the subject shareholders. In Tesco, the strategic report shows a number of bad events such as relatively poor performance by the directors which is in turn depicted in poor performance in group revenue. However, the mitigation factors applied by the company are also presented to give the shareholders hope about the future of the company. For Mark and Spencer Group, there are a number of events including good performance of the directors, which have led to increase in revenues and sale as depicted in the financial statements.

Bibliography

Tesco PLC (2015). Tesco PLC Annual Report and Accounts 2015.
Mark and Spenser 2015). M&S Strategic Report 2015.
ACCA & Deloitte (2010), Hitting the notes, but what’s the tune? An international survey of CFOs’ views on narrative reporting, Report from ACCA in partnership with Deloitte.
Campbell, D. & Slack, R. (2008), Narrative reporting: Analysts’ perceptions of its value and relevance, Research Report 104, The Association of Chartered Certified Accountants (ACCA).
Deloitte (2015), Annual report insights 2015: The reporting landscape, Deloitte.
FRC (2014), Guidance on the Strategic Report, The Financial Reporting Council (FRC), June.