Financial statements are utilised to keep tabs on the monetary health of a business. You can obtain information about the financial position of a company, how it is performing and any changes that have been or need to be made.
There are three core financial statements used on a regular basis by companies, and they are: cash flow statements, income statements and balance sheets.
Who uses financial statements?
The managers of a business will use various statements to assess the performance of a company and its position, which helps when making important decisions. Shareholders and investors will also use financial statements to check the viability of a company before investing and also to check their returns on investment when they have shares.
Banks and other such institutions may require financial statements before deciding whether or not to grant a loan to a business. There are many users who may need to see financial statements.
Cash flow
A cash flow statement will outline the cash received by a firm and the money it spends during a specified time period. Although a company may be able to show a large number of sales, until the invoice has been paid, the money won’t be included on the cash flow statement. For this reason, a cash flow statement is crucial for a real-time look at the finances of a company.
Although overall profit may be healthy and the business may be expanding, the cash flow may be less optimistic as it only details the actual cash received.
Income statements
An income statement shows the profit and losses of a company for a specific period. It is generally for a longer period of time than a balance sheet, although some of the information produced may be the same. The statement will indicate whether a profit has been made or losses sustained during a month or other period.
Balance sheet
A balance sheet outlines similar information to that on income statements, but also lists the assets and the debts of a company at any time. Balance sheets are often produced on a quarterly basis, although more regular reporting may be useful for some businesses. Ideally, a balance sheet will show more assets than debts.
As a small business owner it is easy to become embroiled in the daily management of a company, and yet the above statements are crucial to managing the finances. Many owners choose a management accounting service to assist with daily operations. Call us now if you would like to know more.