A financial report is an evaluation of a company’s health, performance and trajectory. It’s a key piece of information for stakeholders and decision-makers that can be used to analyze trends, mitigate risks, recognize opportunities and ensure regulatory compliance.
Financial reports are prepared by finance teams to deliver the insight needed to assess a business’s finances, including cash flow and performance. They also provide a foundation for measuring and reporting on KPIs to internal and external audiences.
The three basic types of financial reports are the income statement, balance sheet and cash flow statement. The income statement (also known as a profit and loss statement) records revenue, expenses and net income or losses over a fiscal period. The balance sheet lists the beginning and ending accounting balances for assets, liabilities and equity accounts and reconciles them to each other. The cash flow statement outlines inflows and outflows of cash for operating, investing and financing activities and is often broken down into separate sections for each.
Financial reports are essential to businesses of all sizes. They help attract investment from potential investors by demonstrating the company’s profitability and stability and allowing them to gauge the risk involved in a venture and formulate an estimated return. They’re also vital to ensuring that companies remain in compliance with regulatory authorities like the SEC or HMRC and file accurate tax returns. They can also help businesses budget and conduct financial forecasting. These reports can also be used to support collective bargaining with employees and management or for determining compensation and promotions.