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Highlights: As part of our explanation of the sections contained with an annual report of most public companies, we address the “highlight” section of the report. The following discussion is designed to be generic in nature and should not be considered complete in all material respects. It is being provided for educational purposes only. Thus, it should not be relied upon as legal or investment advice. If you have any questions relative to the contents of this post, you should contact a qualified professional.
The highlights section of the annual report greets you as the first section thereof for your review. It often contains, among other things, charts and graphics that present basic information in a clear, comparative way that requires little explanation. At the very least, you should expect to find the company’s total sales for the past two years and the net income, expressed both as a total and on a per share basis. But what is most important to understand about the highlights section is that the company and its public relations advisers can include here whatever other information they feel will create the desired impression on the shareholder or prospective shareholder. That usually means that you can expect to find information and a discussion thereof that tend to create a positive impression of the company’s current and foreseeable prospects. To the extents that the same is discussed, adverse information is usually downplayed. Consequently, the information contained in the highlights section of an annual report should be considered for exactly what it is.
Where earnings are presented on a per share basis, accounting regulations require that they be reported two way: (1) “basic earnings per share” — this represents earnings per share of stock presently outstanding; or (2) “diluted earnings per share” — this represents earnings per share assuming the conversion or exercise of all outstanding securities and rights potentially causing the issuance of additional shares.