A financial report is a document that summarizes your business’s income, cash flow, how resources are being used, and other aspects of its finances. Its purpose is to help management, investors, lenders, and trade partners gather the information they need to make informed decisions about a company’s finances and financial health.
While the exact structure of a financial report will vary from one organization to another, most have some similar components. For instance, all financial reports include a balance sheet that lists your company’s assets (e.g., cash and cash equivalents, marketable securities, accounts receivable), liabilities (e.g., account payable, loans), and shareholders’ equity at a certain point in time, such as the end of a quarter or year. It also shows your company’s debt-equity ratio, which is calculated by dividing total liabilities by total shareholders’ equity.
You also need an income statement, which sums your company’s revenues (e.g., sales, service revenue) and expenses (e.g., cost of goods sold, salaries, rent) over a given period using accrual accounting (recognizing revenues and expenses when they occur, rather than waiting to record them until you actually receive or pay them). You then subtract your company’s operating costs from its gross profit to get its net income.
Finally, you need a cash flow statement, which outlines how much money your company has coming in and going out, including cash received from customers, payments to suppliers, investments in new projects, and more. It also includes a cash flow forecast to show how your company expects its cash to change over the next few years. Regardless of the type of report you’re writing, it’s important to keep in mind your audience’s level of financial literacy. That way, you can ensure your report contains only the relevant and necessary information for its audience.
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