Table of Contents
The financial statements of a company provide various financial information that investors and creditors use to evaluate the financial performance of a company. The financial statements are also important for the administrators of a company, because through the publication of the financial statements, the administration can communicate with external stakeholders about its performance and operation of the company. Different financial statements focus on different areas of financial performance.
Financial conditions
The financial conditions of a company are of great concern to investors and creditors. As capital providers, investors and creditors rely on the company’s financial conditions, both for the security and for the profitability of their investments. More specifically, investors and creditors need to know where their money went and where it is now. The financial statements of the balance sheet deal with such matters by providing detailed information on the investments in assets of a company. The balance sheet also shows the outstanding debt of the company and of the equity components, so that through debt and equity investors they can better understand their relative positions in a company’s capital mix.
Operation results
Financial conditions are shown in the balance sheet and are snapshots of a company’s assets, liabilities and equity at the end of the reporting period and do not disclose what happened during the period of operations that may have caused the changes in Financial conditions Therefore, the operating results during the period also refer to investors. The results of the financial statements report operating results such as sales, expenses and gains or losses. Using the income statement, investors can evaluate both the company’s performance, past income and evaluate the uncertainty of future cash flows.
Cash flows
The benefits of a company reported in the income statement are countable income and most likely contain certain non-monetary elements, providing non-direct information about the effective exchange of a company during the period. On the other hand, a company also incurs cash inflows and outflows during a period between other activities outside the operation, that is, investment and financing. For investors, the cash from all sources, not only those that represent operating income, is what returns their investments. The importance of the cash flow statement shows the exchange of money between a company and the outside world for a period,
Net worth
The shareholders’ equity declaration is especially important for equity investors, as they show changes in the different equity components, including retained earnings, over a period. The amount of own funds is the total assets of the company minus its total liabilities, which represents the net worth of the company. A steady growth in the net worth of a company increases retained earnings, rather than broadening the shareholder base, it means the accumulation of returns on capital investments of current shareholders.