What is a Financial Statement?

A financial statement is a critical business document that provides financial information about a company. The financial statement generally includes information about a business's cash flow, gross and net revenue, operational budget, and capital expenditure budget as well as information about the business itself. Financial statements include specific financial figures related to the business that may be of interest to investors and should help to keep the business on-budget. This information may include:

• A financial overview, including fiscal year-end figures, financial filings amounts, sales, sales growth, investor relations information, and annual reports
• An annual income statement, which will include revenue, cost of goods sold, gross profit, gross profit margin, expenses, depreciations, operating income, operating margin, non-operating income, non-operating expenses, income before taxes, income after taxes, income taxes, and more
• A quarterly income statement, which will include the same categories as annual income, but broken down into quarters
• An annual balance sheet, which may include current assets, cash, net receivables, inventories, net fixed assets, and total current assets
• A quarterly balance sheet, which breaks down the annual balance sheet categories by quarters
• Annual cash flow information, which includes figures for net operating cash flow, net investing cash flow, net financing cash flow, net change in cash, capital expenditures and more
• Quarterly cash flow, which breaks down the annual cash flow information by quarters
• Historical financials, which includes year-end figures for the history of the organization
• Market data, for publicly-traded companies
• Comparison data for other businesses within the same industry
• Competitive landscape, including information about major competitors

In addition to financial information about a business, a financial statement may also include:

• Information about key employees, such as executives
• A company overview and history
• Product and operations information
• Analysis of the competitive landscape
• Industry information

Why are Financial Statements important?

Financial statements are crucial business tools that help organizations understand their financial situations and manage their budgets. The central focus for many businesses is to earn money. A financial statement can not only help a business understand whether or not it is profitable, but financial statements can also track cash flow, expenses, business value, and other critical factors that help to determine just how financially successful a business is or can be. Financial statements are important to different organizations for different reasons because each organization will customize financial statements for their own needs. For example, a publicly traded company would need to collect and maintain data pertaining to stock prices and industry-wide predictions. A company that sells goods would need to maintain data about the total cost of the inventory, cost of goods lost (perhaps due to theft or to expired goods), and total revenue. Therefore, these financial statements serve these two types of organizations differently and help the organizations achieve separate goals.

How should a vendor for Financial Statements be selected?

After you know what kind of information you would like to have in your financial statements, you should select a vendor based on their ability to complete a financial statement for your company. If you have never done a financial statement before, you may want to find a vendor that can perform an internal audit in order to complete information that is critical to the financial statement. Most Certified Public Accountants are able to audit a company in order to create a financial statement. If you choose to work with an internal source for all of your accounting issues, then you will need to hire an accountant to keep track of financial information. Select your accountant based on experience, scores on his or her accounting exams, and other qualifying factors that are important to your company, such as leadership or ability to work on a team. Remember: it is important for your accounting team to maintain open communications with executives and other leadership staff in order to ensure that financial statements are accurate and helpful to the company. Therefore, your accountant will need to have access to private files that may be off limits to other employees. Keeping open communication with your accountant is the best way to ensure that your financial goals are on track.

Additional Resources

• Hoovers - a certified Dunn and Bradstreet company that creates financial statements
• Urgent Business Forms - Start with a template for your financial statement