The financial statement is useful to know the financial situation of a company.
Financial statements is the name that identifies the documentation and reports that contain, in writing, economic data linked to an entity. This tool that serves to reflect corporate economic actions is also called a financial report or accounting statement .
At an internal administrative level, they are valued and taken into account to closely monitor a company's finances . Potential investors, meanwhile, focus on the financial statements when analyzing whether it is profitable or not to bet on a certain firm.
Types of financial statements
There are several types of financial statements or components of this type of reports.
In order to record movements and changes in cash matters, for example, in companies there is an accounting statement known as a cash flow statement (which is segmented, considering its focus, into financing cash flow , investment cash and operating cash flow ).
As part of the annual accounts, meanwhile, the statement of changes in net worth appears. This document is vital when examining the financial situation of a corporation from one period to another. Losses (or deficits ), a surplus and different transactions influence, over time, net worth , altering (for better or worse) its value.
Nor can we fail to refer to the balance sheet , which is sometimes classified as a statement of financial position . This accounting report covers three components: the assets (expressed in the field corresponding to credit), the liabilities (boxed in the debit column) and the net worth (data obtained by subtracting the liabilities from the total assets).
A public accountant performs audits and everything necessary to carry out accounting actions for a person or company.
There is another financial statement , commonly called the profit and loss statement , economic performance statement or income statement , which organizes and details data with the aim of demonstrating how the result for the year has been reached in a specific period.
Going even deeper into the existing alternatives in this regard, the categories of individual financial statements (documents of corporations that do not control any firm or that belong to an economic group but make individual financial presentations), separate financial statements (developed by a house or parent company measuring investments in businesses in relation to their level of equity participation) and consolidated financial statements (they interpret the financial data of a parent company and its subsidiaries as if they were the same entity).
In the financial planning stage, in addition, the pro forma financial statements (also defined as projected financial statements ) that emerge at the conclusion of this phase are very useful and relevant. Internally, the company observes through them, quantitatively, what result arises from the implementation of its plans; From the outside, this report influences decision-making focused on investments and/or credits.
Various variables alter, both positively and negatively, the net worth of a corporation.
Regulatory frameworks and accounting principles
There are regulatory frameworks and accounting principles that must be known and not overlooked when developing accounting activities.
In this context it is essential to refer to the Generally Accepted Accounting Principles ( GAAP ). This is the name given to a series of interpretations, guides and standards endorsed by regulators of the performance of accountants. They are used, for example, by companies that are listed on Wall Street . The North American modality ( US GAAP ) is similar to the International Financial Reporting Standards ( IFRS ), which concentrate technical standards of international scope intended to unify the criteria for carrying out an accounting activity.
It is necessary to know that, when preparing financial statements , regulations or provisions that govern the national territory within which the company in question has been registered are generally applied. Accounting experts, when carrying out a financial audit , evaluate various parameters and make practical use of different techniques depending on their objective.
Interpretation of financial statements
The interpretation of financial statements requires the exploration of multiple techniques and indicators.
In this framework it comes into play, to detail two common and widely used references, vertical analysis and horizontal analysis . Through them, which complement each other but provide different responses, it is possible to identify considerable alterations in the financial behavior of a company .
Financial indicators or ratios are other resources that are used since they give the possibility of studying the accounting panorama, whether past or current, of a firm or organization. Depending on the area or objective measured, profit ratios , activity ratios , market ratios , liquidity ratios (such as net working capital over total assets ), profit ratios and debt ratios are distinguished. Other financial ratios are asset rotation (emphasizes corporate efficiency in relation to its assets as a tool to obtain income from sales) and inventory rotation (serves to examine how it is managed in the commercial or logistics sector of a company).