A financial report provides a snapshot of your business’s finances over a specific period, usually a quarter or a year. It’s a critical tool for evaluating performance, driving strategic decision-making and staying in compliance with legal requirements.
The four most common financial statements include an income statement (or profit and loss), a balance sheet, a cash flow statement and a statement of changes in shareholders’ equity. Each one provides a different insight into your business’s financial health.
An income statement shows how much revenue a company generates over a given time frame. This information is used by investors, regulators and managers to assess a company’s profitability. It also helps identify opportunities to cut costs and maximize revenue, such as reducing utility costs by shifting production to energy-efficient equipment.
Your balance sheet highlights a company’s assets, liabilities and shareholder equity at a point in time. It’s often divided into current assets, such as cash and cash equivalents, inventory, marketable securities, accounts receivable and fixed assets like machinery and property. It’s also helpful to list out a company’s noncurrent liabilities, such as long-term debt and interest payments, to provide a fuller picture of its financial stability.
A cash flow statement shows how much money flows in and out of your company over a certain period. This is essential for establishing efficient debt management, forecasting future profitability and identifying potential cash flow bottlenecks. It also allows you to compare budgeted vs actual results to evaluate performance and make strategic adjustments.
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