A financial report is a document that summarizes the numbers behind your business’s performance and position. It’s an essential tool for stakeholders (like investors, creditors, and employees) to evaluate your company’s health and identify opportunities for growth and investment. It’s also critical to meeting external reporting deadlines and avoiding compliance issues.
The main sections of a financial report include a trial balance, an income statement, a cash flow statement, and a statement of changes in equity. The trial balance lists the balances of all general ledger accounts at a point in time. The income statement calculates revenues and expenses over a specified period to determine your company’s profitability. It can be calculated using either the direct or indirect method, which accounts for non-cash items like depreciation and amortization, and considers changes in operating assets and liabilities.
The cash flow statement identifies the inflows and outflows of cash within your company, including operational activities (like sales and service revenue), investing activities (like purchases and sales of goods and assets), and financing activities (like debt issuance and repayment and stock buybacks). It can be calculated using either the direct or the indirect method, which accounts for each cash receipt and payment to and from your bank account, as well as changes in operating assets and liabilities. It can be compared to the ending cash balance on your balance sheet to see where your money is going.