Narrative disclosuresLast updated 1 January 1970

Reading the directors' report and strategic report

TL;DR

The directors' report and strategic report are the two written narratives in UK accounts. The directors' report is legal boilerplate; the strategic report is where real insight hides — Section 172 statements, KPIs, principal risks, and the business's own theory of itself. Only medium/large filers publish a strategic report.

Where insight actually lives

Strategic report — KPIs, risks, strategy, Section 172 (medium/large only).
Directors' report — principal activities, dividends, director list, going-concern statement.
Audit report — the auditor's opinion on true and fair view. Any qualification is a red flag.

The strategic report — what to look for

Under Companies Act 2006 s.414A–414D, medium and large companies must include a strategic report. Read it for four things:

Strategy. How does the business intend to win? Growth by acquisition, geographic expansion, category leadership, disruption?
KPIs. Both financial and non-financial. Track them year-on-year — steady KPIs indicate management discipline; changing KPIs indicate a narrative shift.
Principal risks. What the board thinks could go wrong. New risks vs prior year are the most telling.
Section 172 statement. How directors weighed employees, suppliers, customers, community and environment. Often written by lawyers, but the content matters.

The directors' report — what's required

Principal activities of the business.
Dividends recommended and paid.
List of directors who served during the year.
Going concern statement.
Statement of directors' responsibilities.
Political donations (over £2,000).
Streamlined Energy and Carbon Reporting (SECR) — large filers.

Most of this is legal boilerplate, but the going-concern line is worth reading closely. Any hedged language ("material uncertainty") is a serious warning.

Reading for changes

The single most useful diligence trick with narrative disclosures is to compare two years of the same company's strategic report. Whatever's been added, dropped, or reworded is where management thinks the story has changed. Additions of new risks around cash flow, foreign exchange, key customer, or regulatory action deserve follow-up.

Audit qualifications

When the audit report is anything other than unqualified, take it seriously. An "emphasis of matter" on going concern often precedes formal insolvency by 6-18 months. A qualification on inventory valuation on a stock-heavy business is a working-capital signal.

What small filers don't publish

Small companies escape the strategic report entirely. That's a big gap. If you're diligencing a small filer, ask the directors for:

A short strategy memo.
Top-5 customer concentration.
Top-5 supplier concentration.
Current run-rate KPIs (revenue, gross margin, EBITDA).

Any competent operator will produce this in a day. See small company exemption filings.

Frequently asked questions

What's the difference between a directors' report and a strategic report?

The directors' report is a legal narrative required from all UK companies except small filers. It covers dividends, principal activities, and directors' names. The strategic report is a richer narrative on strategy, risks and KPIs — required from medium and large companies.

Do small companies file a strategic report?

No — small companies are exempt. See our small company exemption guide.

What is Section 172?

Section 172 of the Companies Act 2006 requires directors to promote the success of the company having regard to stakeholders. Since 2019 medium/large companies must include a Section 172 statement in the strategic report explaining how they've done that.

What are KPIs in the strategic report?

Key performance indicators — the small handful of metrics the directors say they run the business on. Look for a mix of financial (revenue, gross margin, EBITDA) and non-financial (retention, safety, headcount).

Are principal risks reliable?

Broadly yes, but they're written by directors for public disclosure. Serious risks are usually listed; the priority order is directional. Look for changes year-on-year — a new risk appearing near the top is a signal.

What can I learn about strategy?

The strategic report is where directors explain how they see the business, its market, its competition and its growth plan. It's the most useful narrative source on Companies House by a distance.

Do directors sign the report?

Yes — the directors' report is signed by a director on behalf of the board. Any signature dated after the balance sheet date but before filing is normal.

Can strategic reports be misleading?

They shouldn't be — misleading disclosure is an offence. But they're marketing-adjacent — read alongside the numbers, not instead of them.

What does 'principal activities' mean?

A one- or two-line summary of what the business actually does. Useful when the SIC code is generic — for example, 'other business support' could be anything.

Does the directors' report list all directors?

Yes — all directors who served during the accounting period plus any who joined between year-end and signing.

What's a fair review?

The fair review requirement under Companies Act s.417 obliges medium/large filers to give a balanced picture of the business's performance, position and future — not just a highlight reel.

Where do I read energy and carbon disclosures?

Streamlined Energy and Carbon Reporting (SECR) requirements apply to large companies and are usually within the directors' report or an appendix. Look for kWh, tCO2e and intensity ratios.

Keep exploring

Every UK company research tool we've built, plus honest reviews of the paid alternatives.