Financial Statements (2024)

Financial statementsare reports on companies’ spending and fiscal positions. These statements can be audited by the government to prevent tax fraud and other illegal activities. Financial analysts use these statements to analyze a company’s performance, then use that information to make predictions about its stock price and future success.

Financial statements can be divided into four categories: balance sheets, income statements, cash flow statements, and equity statements.

Balance Sheet

Balance Sheets detail a company’s assets, liabilities, and net worth for a specific date. These sheets are typically created at the end of the fiscal year. The assets are listed in order of liquidity, while the liabilities are listed in the order that they need to be paid.

Income Statement

Income statements cover either a year (annual financial statements) or a quarter (quarterly financial statements), and describe how a company arrived at their net income over that period. The details of these statements include revenues, expenses, and earnings per share, and usually includes past data to compare with.

Cash Flow Statement

A cash flow statement describes a company’s inflows and outflows of money over a period of time. These flows of money come from three main activities: operating, investing, and financing. Analysts use cash flow statements to find dividends paid and the dollar value of repurchased shares.

Equity Statement

Equity statements describe how the equity of a company changes over time. This change is affected by net profit or loss, individual gains or losses, shares bought and sold, and dividend payments.

Financial Statements (2024)

FAQs

What is a financial statement answer? ›

Financial statements are a set of documents that show your company's financial status at a specific point in time. They include key data on what your company owns and owes and how much money it has made and spent.

What won't financial statements tell you? ›

Non-financial factors surrounding the business.

Examples may include environmental factors that impact either revenue sources or raw materials, or market demand that may impact the perception of the products or services offered.

Which financial statement answers the question how much income? ›

Income Statement. The income statement answers a business's most important question: How much profit is it making? It is limited to a specific period of time (a month or a year) from beginning to end.

Do directors have to approve financial statements? ›

They must be prepared in accordance with applicable law and regulations and directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss of the company for that period.

What financial statements tell you? ›

The three main types of financial statements are the balance sheet, the income statement, and the cash flow statement. These three statements together show the assets and liabilities of a business, its revenues, and costs, as well as its cash flows from operating, investing, and financing activities.

Which financial statement is most important? ›

Types of Financial Statements: Income Statement. Typically considered the most important of the financial statements, an income statement shows how much money a company made and spent over a specific period of time.

What is a red flag on a financial statement? ›

A red flag is a warning or an indication that the stock, financial statements, or news reports of business pose a possible issue or a threat. Red flags can be any undesirable characteristic which makes an analyst or investor stand out.

What is financial statement deception? ›

Financial statement fraud occurs when financial information is intentionally misrepresented or manipulated to deceive stakeholders and create a false perception of a company's financial condition.

Why financial statements are not enough? ›

Financial Statements Do Not Cover Non-Financial Issues

The financial statements do not address non-financial issues, such as the environmental attentiveness of a company's operations, or how well it works with the local community. A business reporting excellent financial results might be a failure in these other areas.

What are the three main financial statements? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

How are financial statements connected? ›

Net income from the bottom of the income statement links to the balance sheet and cash flow statement. On the balance sheet, it feeds into retained earnings and on the cash flow statement, it is the starting point for the cash from operations section.

What 4 things does an income statement show? ›

The income statement shows a company's expense, income, gains, and losses, which can be put into a mathematical equation to arrive at the net profit or loss for that time period. This information helps you make timely decisions to make sure that your business is on a good financial footing.

Does the board approve audited financial statements? ›

Presentation of the audit report to the board of directors

During the meeting that the board of directors receives the independent audit, the appropriate action for the agenda is for the board of directors to "accept" the auditor's report and letter to management, rather than "approve" them.

Who approves the financial statements? ›

Financial statements are approved and signed by the directors before the accountants' report is signed.

Is the CEO responsible for financial statements? ›

Monitor company performance: A CEO is ultimately responsible for a company's financial performance. They may rely on financial or nonfinancial metrics to track how things are going.

What is an example of a financial statement? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

What is a financial statement quizlet? ›

Financial statements (or financial report) is a formal record of the financial activities and position of a business, person, or other entity. ... A balance sheet or statement of financial position, reports on a company's assets, liabilities, and owners equity at a given point in time.

What is the meaning of statement of financial? ›

A statement of financial position is another name for a balance sheet. It is used to provide an overview of a business's financial position at a given point in time.

What best describes financial statements? ›

Financial statements are written records that illustrates the business activities and the financial performance of a company. In most cases they are audited to ensure accuracy for tax, financing, or investing purposes.

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