What is a Financial Statement?

Published by Thomas Herold in Accounting, Banking, Corporate Finance, Economics

'Financial Statement' is explained in detail and with examples in the Accounting edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Financial statements are official records of a business’ or personal financial activity. With businesses, financial statements present any and all pertinent financial activity as usable information. They do this in a clear, organized, and simple to comprehend way.

Financial statements are commonly comprised of four different types of financial accounts that come with an analysis and discussion provided by the company’s management. The Balance sheet is the first of these. It is known by several other names, including statement of financial condition, or statement of financial position. The balance sheet details will outline a corporation’s ownership equity, liabilities, and assets on a particular date. This will give a good picture of the general strength and position of the company.

Financial statements similarly include income statements. These can also be called Profit and Loss statements too. They outline numerous important pieces of company information, such as corporate expenses, income, and profits made in a certain time period. This statement explains all of the relevant financial details to the business’ operation. Sales and all associated expenses are included under this category. This section of the financial statement proves to be the nuts and bolts of the whole document. It provides a snap shot of the company’s ability to generate sales and turn profits.

A statement of cash flow is also a part of a complete financial statement. As its name implies, this section will share all of the details regarding the company’s activities pertaining to cash flow. The most important ones that will be outlined include operating cash flow, financing, and investing endeavors.

The last element of a financial statement includes the statement of retained earnings. This section of the document makes good on its name to detail any changes to a corporation’s actual retained earnings for the period that is being reported. These four sections of a financial statement are all combined together to make the consolidated financial statement, once they are combined with the analysis and discussion of management.

With large multinational types of corporations, such financial statements are typically large and complicated, making them challenging to read and understand. To assist with readability, they may also come with a group of notes for the financial statement that also covers management’s analysis and discussion. Such notes will go through all items listed on the four parts of the financial statement in more thorough detail. For many companies, these notes for financial statements have come to be deemed a critical component of good and complete financial statements.

Financial statements are used by several different groups of people who are looking at a company. Investors use them in order to determine if the company and its stocks or bonds make a sound investment with a chance of providing good returns on investments and profits in exchange for limited risks. Banks utilize these financial statements to decide if a company is a good credit risk for their loan dollars. Institutions and other groups that may be considering a cash infusion or buyout of the company use such financial statements to decide if the company is a viable investment or acquisition target.

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The term 'Financial Statement' is included in the Accounting edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.