A financial report is a set of documents that describe a business’s finances, including the assets it owns, the liabilities it owes, and its equity components at a point in time. Its information should conform to the accounting standards that your business adheres to, like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
The financial story these reports tell is instrumental in helping companies raise capital through private investments and loans, as well as assess their creditworthiness with suppliers, customers, and investors. They also help inform strategic decision-making, performance evaluation, and legal compliance.
In addition, accurate and timely financial reporting enables companies to maintain healthy cash flow, which helps them sustain operations in the long run. For these reasons, businesses need to keep a close eye on their financial statements and ensure that they are collecting the right information, compiling it in a meaningful way, and making it available to users when needed.
The most common types of financial statements are income statements, balance sheets, and cash flow statements. The income statement outlines revenue, expenses, and net profit/loss for a fiscal period, typically presented in comparison to previous periods. The balance sheet describes a company’s assets, liabilities, and equity at a given point in time by listing them according to the accounting equation: Assets = Liabilities + Equity. The cash flow statement demonstrates the inflows and outflows of cash from operating, investing, and financing activities over a period of time.