This assignment is all about learning and understanding the four main types of financial statements and how each one of them contributes in the financial analysis of a company. I would be also touching upon the particular significance of each of these statements to Investors, Creditors as well as that to the Management.
The Income Statement. Simply put, this statement gives information of the revenue and expenses the company has. These are also known as statements of profit and loss or P&L. This statement can show clearly if one’s income is more than expense, you have a net profit. If the Expense is more than income, then one has a net loss. It does seem to be of most interest to the Investors as it helps determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses.
The Statement of Cash Flows. This statement is very useful to showcase the ins and outs of cash during the reporting period. Besides this, we also come to know about the depreciation, accounts receivable and accounts payable. I do believe that the statement of cash flows would be of most interest to the Creditors as it can assess the ability of a company to pay dividends and meet obligations. It takes into account various aspects of the income statement and balance sheet and then effectively puts them together to show cash sources and uses for the period.
Statement of Balance Sheet. This statement provides one with the knowledge of the company’s assets and Liabilities. It is interesting to know that Accounting is based upon a double entry system. This means that that for every entry into the books there needs to be an opposite and equal entry. When the net effect comes down to zero, this means that the books are well balanced. It should show as Assets = Liabilities + Equity. This statement would be of most interest to the Management of the company as it gives them a snapshot of a company’s financial condition and it applies to a single point in time of a business’ calendar year.