The Director’s Report is a report submitted by the directors of a company to shareholders, informing them about the performance of the company, under their stewardship:

1. It enunciates the opinion of the directors on the state of the economy and the political situation vis-à-vis the company.

2. Explains the performance and the financial results of the company in the period under review. This is an extremely important part. The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance.

3. The Director’s Report details the company’s plans for modernization, expansion and diversification. Without these, a company will remain static and eventually decline.

4. Discusses the profits earned in the period under review and the dividend recommended by the directors. This paragraph should normally be read with sane scepticism as the directors will always argue that the performance was satisfactory. If profits have improved the reasons stated would invariably be superior technology adopted, intense marketing and hard work in the face of severe competition etc. If profits are low, adverse economic conditions are usually blamed for the same.

5. Elaborates on the directors’ views of the company’s prospects for the future.

6. Discusses plans for new acquisitions and investments.

An investor must intelligently evaluate the issues raised in a Director’s Report. If the report talks about diversification, one must the question that though diversification is a good strategy, does it make sense for the company? Industry conditions, the management’s knowledge of the new business must be considered. Although companies must diversify in order to spread the risks of economic slumps, every diversification may not suit a company. Similarly, all other issues raised in the Director’s Report should be analysed. Did the company perform as well as others in the same industry? Is the finance being raised the most logical and beneficial to the company? It is imperative that the investor read between the lines of the Director’s Report and find the answers to these and many other questions. In short, a Director’s Report is valuable and if read intelligently can give the investor a good grasp of the workings of a company, the problems it faces, the direction it intends taking and its future prospects.