Question

In: Finance

What details might be provided in a financial report? Discuss in 120 to 150 words.

What details might be provided in a financial report? Discuss in 120 to 150 words.

Solutions

Expert Solution

A Financial Report must have three statements.

1. Balance Sheet

2. Income Statement/Profit and Loss Statement

3. Cash Flow Statement

1. Balance Sheet provides information about company's assets, liabilities and equity of shareholders.

A Company's assets should be equal to sum of its liabilities and equity of shareholders. Assets are further classified into fixed and current assets. Liabilites are classified into longterm and current liabilities.

2. Income Statements

An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). An income statement also shows the costs and expenses associated with earning that revenue. It tells you how much the company earned or lost over the period.

From total sales various deductions like depreciation, expenses and taxes are deducted to understand if the company has made profit or loss. Some income statements show interest income and interest expense separately. Some income statements combine the two numbers. The interest income and expense are then added or subtracted from the operating profits to arrive at operating profit before income tax.

3. Cash Flow Statements

Cash flow statements report a company’s inflows and outflows of cash. This is important because a company needs to have enough cash on hand to pay its expenses and purchase assets. While an income statement can tell you whether a company made a profit, a cash flow statement can tell you whether the company generated cash.

A cash flow statement shows changes over time rather than absolute dollar amounts at a point in time. It uses and reorders the information from a company’s balance sheet and income statement.

The bottom line of the cash flow statement shows the net increase or decrease in cash for the period. Generally, cash flow statements are divided into three main parts. Each part reviews the cash flow from one of three types of activities: (1) operating activities; (2) investing activities; and (3) financing activities.


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