What are financial statements? What are they for? Why do businesses need to understand and interpret what they represent?
There are numerous different ways to analyse the value of a certain company or organisation. However, the most effective is to look at its financial statement. A company releases its financial statements as part of its half-year and full year reports required by Australian Securities & Investments Commission or ASIC.
Financial statements are grouped into three main types: Statement of Financial Position, Statement of Financial Performance and Statement of Cash Flows.
The statement of financial position is a snapshot, and reflects the company’s assets and liabilities at a specific date – usually at the end of, or half way through, a financial year. It is more commonly referred to as a Balance Sheet, and details the company’s assets (what it owns), liabilities (what it owes) and shareholder’s equity.
The Statement of Financial Performance reflects how much money the company has made or lost over a period of time, usually 6 or 12 months. The statement is broken up into two parts; Income (sales and other revenue) and Expenses (costs). Article
Statement of cash flows, also known as cash flow statement, reflects where the company is generating or leaking cash over a period of time, usually 6 or 12 months.
To learn more about financial statements, you should read this article from Small Business Chronicle: http://smallbusiness.chron.com/basic-features-four-financial-statements-interrelationships-24250.html