A financial report is an accounting document that records, organizes, and displays your company’s financial performance and cash flow. It’s a necessary part of any business, and it helps stakeholders understand your company’s financial health and positioning. The purpose of financial reporting is to provide insight for decision-making and to show where a company’s money is coming from and going.
The most common types of financial reports include the income statement, cash flow statement, and statement of changes in equity. The income statement calculates revenues and expenses using accrual accounting and presents them in a clear format with gross profit, operating income, and net income. The cash flow statement is an analysis of cash inflows and outflows over a reporting period. It includes operating cash flows (cash received from customers and cash paid to suppliers and employees), investing cash flows (cash spent on property and equipment, and proceeds from stock issuance or repurchases), and financing cash flows (cash paid for interest and principal on debt, and cash received from loans). The statement of changes in equity shows the change in equity ownership over the reporting period and reflects retained earnings, dividend payments, and share repurchases.
Businesses use financial statements for a variety of reasons, including strategic decision-making, legal compliance, and to enhance their relationship with current and potential investors and creditors. Transparent financial reporting also makes it easier for a company to pay its suppliers, set competitive prices with its customers, and establish creditworthiness with its creditors.
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