Financial statements are records that outline the financial activities of a business, individual, or any other entity . Corporations report financial statements following Generally Accepted Accounting Principles (GAAP). The rules about how financial statements should be put together are set by the Financial Accounting Standards Board (FASB). Standardized rules ensure, to some extent, that a firm's financial statements accurately represent the company's financial status.
Financial Statements Analysis
Corporations report financial statements following Generally Accepted Accounting Principles (GAAP).
Companies generally submit three forms of financial statements. The information contained in these statements, and how this information fluctuates across periods, is very telling for investors and government regulatory agencies. These three financial statements are:
The income statement (also called the "profit and loss statement"): This gives an account of what the company sold and spent in the year. Sales (also called "revenues"), or what the company sold in products and services, less any expenses (expenses are divided into a number of categories) and less taxes, gives the company's income. The income statement summarizes all this type of activity for the year.
The balance sheet: This is a financial snapshot of what the company owns (assets), what it owes (liabilities), and its worth free and clear of debt (or the value of its equity). Analyzing a balance sheet informs shareholders about the company's financial health.
The cash flow statement: It tells what transactions went into and came out of the company in the form of cash. This is necessary because accounting sometimes deals with revenues and expenses which are not real cash, such as accounts receivable and accounts payable. Looking at the actual cash flow gives a better idea of how well the company can meet its cash obligations.
The period represented in a given financial statement can vary. A company may report its financials in a fiscal year that is different from the calendar year. While some firms do follow the calendar year, others--such as retail companies--prefer not to follow the calendar year due to seasonality of sales or expenses, et cetera.
The reporting of these financial statements is regulated by the federal agency, the Securities and Exchange Commission (SEC). According to SEC regulations, companies have to file an extensive report (called the 10K) on what happened during the year. In addition to the 10K, companies have to file 10Qs every three months, which give their quarterly financial performance. These reports can be accessed through the SEC's website, www.sec.gov, the company's website, or various financial websites, such as finance.yahoo.com.