Shareholder Letter

What is a Shareholder Letter?

A shareholder letter is written by the executives of a company to its shareholders, providing a detailed overview of its operations and other material events that occurred during the year. The shareholder letter informs shareholders about the annual financial results for the past year, sales and earnings, changes in management, current market conditions, changes in the stock price, proposed plans, and other related matters that the shareholders should be aware of.

The letter offers top executives an opportunity to speak directly to the shareholders and brief them on the company’s operations and market conditions affecting the business from their perspective. Usually, a shareholder letter is published once a year, and it is included in the annual report provided to shareholders.

Shareholder Letter Explained

Management uses the shareholder letter to share its achievements, challenges, financial results, upcoming events, and plans. It informs current and potential investors of the company’s progress for the year.

For existing shareholders, the letter helps them look forward to the future if the financials show a strong performance. The letter also gives the shareholders an outlook from the top executives, especially the CEO, and their ability to turnaround the company and increase shareholder value.

Potential shareholders use the shareholder letter as the first step towards understanding the companies they intend to invest in. It also serves to evaluate the reputation of the company’s executives and their ability to increase its profitability. However, since the shareholder letter is written to win the confidence of shareholders, the executives may intentionally exclude certain information that may paint the company in a negative way.

Therefore, potential investors should pay more attention to the audited financial results and perform an independent analysis to determine the company’s true position before making an investment decision. For example, investors can scrutinize Form 10-K to analyze the company’s financial performance and verify the accuracy of statements and earnings reports mentioned in the shareholder letter.

Template of a Shareholder Letter

Introduction

The introductory part is the welcoming section of a shareholder letter, and it outlines a brief history of the company, its primary activity, core objectives, mission, and vision. The letter also includes a welcome note from the company’s CEO, and it provides an overview of key achievements and what investors should expect.

Financial Results

The financial results section is the most important part of the shareholder letter, and it highlights the company’s financial results during the past year. It breaks down the financial results by outlining the sales revenue and profits generated from the different branches or geographical locations where the company operates.

It also details the financial performance in terms of percentage to show how the company performed during the year compared to the preceding year. The executives may also share information relating to existing loans, capital utilization, and current market share.

Achievements

The shareholder letter also outlines the company’s key achievements during the year, such as new acquisitions, expansions to new markets, new product lines, increased stock price, innovations, inventions, and patents acquired. The management may outline the preceding year’s plans, such as expected new product lines and new branches, and the steps taken to accomplish the plans.

Market Conditions

Management uses the section to discuss the market conditions affecting the business environment during the year and how the company navigated through the tides. The management also shares the impacts of the prevailing market conditions on the company’s financials and the steps taken to strengthen its ability to withstand the effects.

Plans and Measures

The plans and measures section details the measures taken by the management to improve the companies overall performance and to increase its competitiveness in its industry. The executives also use the section to share insights into the company’s proposed plans for the upcoming year and the outcomes that they intend to achieve after fulfilling the plans.

Acknowledgment

Acknowledgment is the final section of the shareholder letter. The executive uses the section to appreciate all stakeholders that make up the company, including the shareholders, employees, suppliers, creditors, etc.

Shareholder Letter vs. Quarterly Report

A shareholder letter and quarterly report are two different documents that firms publish and may include similar information. However, the two documents are different in the following ways:

A shareholder letter is written from the executives to the shareholders, and it provides a summary of the company’s performance and what to expect in the company’s reports. Companies use the shareholder letter to address issues that affect the company and the proposed plans for the upcoming years.

A quarterly report is a highly structured document that follows the guidelines provided by the Securities and Exchange Commission (SEC). It is also known as Form 10-Q, and it includes key financial statements and an overview of the company’s performance, such as sales revenue, profits, market share, etc.

Learn More

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class credit analyst. To keep advancing your career, the additional resources below will be useful:

• Earnings Report
• Securities and Exchange Commission (SEC)
• Equity Statement
• Prospectus
• See all equities resources