Are you struggling to find a company’s financial position and have no idea how to find the financial health and performance of that company? On the other hand, if you’re a business owner and planning to get a loan from a bank or win some investors for the equities, then financial statements are all you need.
Different types of financial statements provide you with unique information about a business. Using these financial reports, you can analyse the strength, weaknesses, opportunities, and risks associated with a business.
In this article, we will walk you through the financial statements and all their types comprehensively. Let’s discuss all of these points of discussion one by one.
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What is a Financial Statement?
A financial statement is a summary or a report about the assets, liabilities, cash, and profits. Moreover, it provides information on the expenses and the activities of a firm. Financial statements are issued by the organization every year.
Financial reports provide a piece of detailed information to the potential investors and lenders. The publicly listed companies and all other corporations issue these statements and publish them on their official websites, making them publicly available. Anyone can access them and use them for making an investment and lending decision.
Types of Financial Statements
Different financial statements are used for making different decisions. However, there are three different types of financial statements.
- The Income Statement (Profit and Loss Statement)
- The Balance Sheet
- The Cashflow Statement
Let’s discuss all of these three statements step by step.
1- The Income Statement (Profit and Loss Statement)
The income statements provide you information about how a particular business performed and earned how much revenue previously during a particular year. Moreover, it provides information on the cost and expenses of an organization.
A typical financial statement consists of the following information:
- Revenue
- Sales Revenue
- Cost of Goods Sold
- Gross Profit
- Operating Expenses
- Net Profit
2- The Balance Sheet
A Balance Sheet provides information on how a business is currently performing at a particular point in time. The information about all the assets a company owns and all the liabilities a firm owes is provided in this sheet.
Moreover, it provides information about the equities, shareholder’s drawing, and retained earnings. Here is a formula for finding the equities in the balance sheet.
Equity = Assets – Liabilities
Equity is the value of a company after paying all the liabilities a company owes. In other words, the retained profits are the equities of a company. Equity can be a public or private stock.
3- The Cash Flow Statement
The accrual-based businesses use cash flow statements. They provide information about the incoming and outgoing cash during a particular period. Moreover, the liquidity of a company can be gauged from this statement.
The accruals and payable accounts are a crucial part of these statements. The accrual account refers to the payment by the customer that has incurred but has not been paid by them. On the other hand, the accounts payable refers to the due payment by the company to its suppliers or any such payment.
Conclusion
In sum, these three financial statements provide a complete picture of the financial performance and financial strength of a business. These statements are more relevant for the intending investors and the loan providers.
A thorough analysis helps them learn about the incoming cash, outgoing cash, and total assets and liabilities. Moreover, the total revenue and profit information is also available in these statements. The income statements, balance sheets, and cash flow statements are crucial to the understanding of a business. Moreover, you can dig deeper and learn how to read these financial statements accurately.
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