Question

List the four major financial statements required by the SEC for publicly traded firms, define each and explain why they are valuable.

Answer 1

The four majorr financial statements required to be filed by a publicly traded firm to SEC are:

i) Balance Sheet;

ii) Income statement;

iii) Statement of Cash flow; and

iv) Statement of Shareholders' equity

Balance sheet is the statement showing the assets, liabilities and shareholders' equity of the firm on the date of balance sheet. It provides the snapshot of the resources owned and owed by the company on a particular date. It is important for the public as it conveys the financial stabiltiy of the company.

Income statement is the statement showing the performance of the company for the period for which it is prepared. It discloses the incomes and expenses of the company and utlimately the net results of the company i.e. net income or net loss. It is used by the public to analyse the operational efficiency of the firm.

Cash flow statement shows the movement of the cash in the business categorised into operating, financing and investing activities. It is valuable because income statement prepared on accrual basis may provide incorrect results which is further corrected by cash flow statement.

Statement of shareholders' equity is like an annexure to the balance sheet which shows the movement in the shareholders; equity viz issue and purchase of shares, etc.