What is a financial statement?
A financial statement is a report that helps the public to understand the present financial situation and performance of an entity, whether it’s a company, a government, or any organization. When we talk about financial matters, we usually refer to specific parts of financial statements, specifically the balance sheet, statement of income, and statement of retained earnings, which are directly related to a business.
So, these financial statements help investors understand a company’s financial health before making any investment decision.
Understanding Financial Statement
Financial statements serve as necessary records that showcase a company's financial performance within a given fiscal period, whether it's monthly, quarterly, or yearly. Companies often prepare multiple statements to serve various purposes, recognizing that relying on a single document can be insufficient for stakeholders to make significant decisions.
When a company's financial statements indicate an improvement in performance, it indicates growth. This, in turn, instills confidence in investors, as they perceive the entity as a promising investment opportunity. Conversely, when the expenses, debt, and costs documented in the statements surpass the revenue, income, and profits, it casts doubt on the company's performance. As a result, potential investors may hesitate to commit their funds to such entities.
Some of the Elements of Financial Statement
Net assets (equity)