Financial Statements: Reports that summarize a company's financial activity, including the income statement, balance sheet, and statement of cash flows.
Financial statements are reports that summarize a company's financial activity over a specific period of time, typically a quarter or a year. The purpose of financial statements is to provide investors, creditors, and other stakeholders with an accurate and comprehensive view of a company's financial performance and position.
The three main financial statements are the income statement, balance sheet, and statement of cash flows.
- Income Statement: The income statement, also known as the profit and loss statement, summarizes a company's revenues, expenses, and net income over a specific period of time. The income statement shows how much money a company earned from its operations, as well as the costs associated with generating that revenue.
- Balance Sheet: The balance sheet provides a snapshot of a company's financial position at a specific point in time. The balance sheet summarizes a company's assets, liabilities, and equity. Assets are anything a company owns that has value, such as cash, investments, and property. Liabilities are debts owed by the company, such as loans or accounts payable. Equity represents the residual value of a company's assets after its liabilities are subtracted.
- Statement of Cash Flows: The statement of cash flows shows the inflows and outflows of cash during a specific period of time. The statement of cash flows is divided into three sections: operating activities, investing activities, and financing activities. Operating activities represent the cash flow generated by a company's core business operations, such as the sale of goods or services. Investing activities represent the cash flow associated with the purchase or sale of long-term assets, such as property, equipment, or investments. Financing activities represent the cash flow associated with the company's financing activities, such as the issuance of debt or equity.
Overall, financial statements are an essential tool for assessing a company's financial health and performance. By carefully analyzing financial statements, investors, creditors, and other stakeholders can make informed decisions about investing, lending, or partnering with a company.
