Financial Statements: List of Types and How to Read Them

Financial statements are also read by comparing the results to competitors or other industry participants. By comparing financial statements to other companies, analysts can get a better sense of which companies are performing the best and which are lagging behind the rest of the industry. For example, some investors might want stock repurchases while other investors might prefer to see that money invested in long-term assets. A company’s debt level might be fine for one investor while another might have concerns about the level of debt for the company.

Even though the company won’t pay the bill until August, accrual accounting calls for the company to record the transaction in July, debiting utility expense. Financial accounting guidance dictates when transactions are to be recorded, though there is often little to no flexibility in the amount of cash to be reported per transaction. Calculating a single instance of data is usually worthless; comparing that data against prior periods, other general ledger accounts, or competitor financial information yields useful information. For example, retailers may see a drastic upswing in sales in the few months leading up to Christmas. This allows the business to forecast budgets and make decisions, such as necessary minimum inventory levels, based on past trends. In the example below, ExxonMobil has over $2 billion of net unrecognized income.

What Is Financial Analysis?

While the former are not required to release financial statements or other financial data to the public, they are required to file tax estimates and annual tax returns with the IRS. Additionally, lenders usually require various regular financial reports, such as specific debt covenant calculations. For those small companies interested in raising capital through smaller registered offerings, there is a dedicated SEC Office of Small Business Policy that provides guidance on financial reporting requirements. Financial reporting involves the disclosure of financial information to management and the public (if the company is publicly traded) about how the company is performing over a specific period of time.

However, many entrepreneurs try to reinvent the wheel and overcomplicate this process with custom financial reports. Some of the key metrics you can follow are net profit, income by month, expenses by month, and profit margin. To estimate net profit, you should use the numbers from your sales forecast, expense estimates, and cash flow statement.

Where Financial Reporting Still Falls Short

The SEC financial reporting manual is hundreds of pages long, not including its guidance publications, called Staff Accounting Bulletins, which help CFOs and controllers interpret the rules. The SEC and the IRS update their rules in line with those tweaks, as well as in response to changes in the national economic climate and in government laws and programs. For example, you can schedule your financial statement report on a daily, weekly, monthly, or yearly basis and send it to the selected recipients automatically. Moreover, you can share your dashboard or select certain viewers that have access only to the filters you have assigned. Finally, an embedded option will enable you to customize your dashboards and reports within your own application and white label based on your branding requirements. You can learn more about this point in our article, where we explain in detail the usage and benefits of professional white label BI and embedded analytics.

This allows managers to efficiently plan their strategies based on the expected costs and revenues. The dashboard also provides a breakdown of each of these metrics to analyze each element in detail. For instance, by looking at the past 6 months of the revenue breakdown chart, we can see that this business has not been reaching the forecasted amount, which means something might be going on that needs to be looked at. On the other hand, we can see that costs for marketing are slightly higher than expected, which can also be something to look into and see if these costs are justified. These statements are important because they relate to the movement of money, not to net income or expenditure. In addition, cash flow statements do not include any money that will come in or be spent on credit.

What Is Financial Reporting? – Purpose, Statement Examples & Analysis

They will provide your company with the insights it needs to remain profitable, meet objectives, evaluate your decision-making processes, and keep everyone in the value chain on track. The balance sheet is sometimes described as a “snapshot” of your company’s financial health because it shows your assets, liabilities, and equity at a single point in time. Usually prepared quarterly, the balance sheet represents the actual “book value” of your company at a particular moment.

• When doing comprehensive financial statement analysis, analysts typically use multiple years of data to facilitate horizontal analysis.
• Capital accounts show the amount of funds and assets invested in a business by the owners or stockholders over a period of time.
• The end result is a financial report that communicates the amount of revenue recognized in a given period.
• The information communicated in financial statements is what investors rely on when they are assessing risks, profitability, and future returns.

You will use this financial data to create budget plans and monitor the company’s overall performance. When you establish an open communication and transparency policy within your business, you are more likely to attract new investors and enhance funding. They are also important for tracking future profitability estimates, business growth, and overall financial health.

Financial Statements: List of Types and How to Read Them

At a high level, you’ll understand the financial positioning of the business and how it enables you to respond to market threats or opportunities. Looking closely at a particular aspect of business finances, you’ll be able to make improvements to strengthen the business. She has written for online internet blogs and writes a weekly single parent column for the Dallas area. Her extracurricular activities include enjoying music, reading and weekly volunteer ministry work.

It provides insight into how much and how a business generates revenues, what the cost of doing business is, how efficiently it manages its cash, and what its assets and liabilities are. Financial statements provide all the detail on how well or poorly a company manages itself. The operating activities on the CFS include any sources and uses of cash from running the business and selling its products or services.

For example, you can discover that the median gross profit a month for B2B, B2C, SaaS and eCommerce is 73.79K. If you perform better than the median, this might be a good incentive for your investors to increase your funding. NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value.

What Is Financial Statement Analysis?

In investment finance, an analyst external to the company conducts an analysis for investment purposes. A top-down approach first looks for macroeconomic opportunities, such as high-performing sectors, and then drills down to find the best companies within that sector. From this point, they further analyze the stocks of specific companies to choose potentially successful ones as investments by looking last at a particular company’s fundamentals. Investing activities include any sources and uses of cash from a company’s investments in the long-term future of the company. A purchase or sale of an asset, loans made to vendors or received from customers, or any payments related to a merger or acquisition is included in this category. Operating revenue is the revenue earned by selling a company’s products or services.

On the other hand, other notes are prepared to enhance understanding and explain the items mentioned in the statements. For internal stakeholders, financial reporting can comprise any financial reports that management wishes to generate, such as detailed sales reports, trends and key performance indicators (KPIs). Financial analysis is used to evaluate economic actual deferral & actual contribution percentage tests definition trends, set financial policy, build long-term plans for business activity, and identify projects or companies for investment. A financial analyst will thoroughly examine a company’s financial statements—the income statement, balance sheet, and cash flow statement. Financial analysis can be conducted in both corporate finance and investment finance settings.

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This makes it easier for creditors, investors and management to analyze the statements and make comparisons over time to other companies. This figure includes revenues from all sources and nets out any discounts given to customers. The balance sheet shows the ending asset, liability, and equity balances as of the balance sheet date.

Operating expenses also referred to as OpEx, are all expenses that companies incur through their day-to-day operations. Such as rent, equipment, inventory, salaries, insurance, materials, marketing, sales, and much more, depending on the industry. It is fundamental for businesses to track their OpEx closely and regularly as they directly affect profitability. An organization that manages to keep its OpEx at a minimum while still maintaining profitability and efficiency stands to gain a massive competitive advantage. Our first example of a financial report provides you with a quick overview of your liquidity and current cash flow situation.