Financial statements are crucial tools that provide insights into a company’s profitability, financial position, and cash flow. They assist owners, investors, and analysts in making informed business and investment decisions, which include some of the financial statements.
Type & Purpose of Financial Statements
Below are some of the financial statements that collectively help stakeholders understand a company's financial health and performance.
- Income Statement: An income statement outlines revenues, expenses, and the resulting profit or loss over a specific period.
- Balance Sheet: The balance sheet document displays what a company owns (assets) and owes (liabilities), along with the shareholders' equity. It follows the equation: Assets = Liabilities + Equity.
- Cash Flow Statement: The cash flow statement tracks cash inflows and outflows, categorised into operating, investing, and financing activities.
- Statement of Changes in Equity: The statement of changes in equity illustrates changes in owners’ equity over time, including profits, dividends, and capital alterations.