Table of Contents
Definition
A financial statement is a formal record of the financial activities and position of a business, person, or other entity. It provides a summary of the financial performance and condition over a specific period. There are three main types of financial statements:
Income Statement (Profit & Loss): Shows the company's revenues and expenses during a particular period, highlighting the net profit or loss. In other words it shows the profitability of a business.
Balance Sheet: Provides a snapshot of the company's assets, liabilities, and shareholders' equity at a specific point in time. To simplify, it shows what the company owns and owes.
Cash Flow Statement: Details the cash inflows and outflows from operating, investing, and financing activities over a period. Basically it helps to understand the business financial health and cash management.
These statements are crucial for stakeholders, such as investors, creditors, and management, to make informed decisions about the entity's financial health.
A Little Table to Clarify
Type | Formula | Notes |
Income Statement (Profit & Loss) | Net Profit = Gross Profit - Expenses | Gross Profit = Sales - Cost of Sales |
Balance Sheet | Total Assets = Total Liabilities + Equities | It refers to single point in time of a business's calendar year. |
Cash Flow Statement | Cash Flow = Cash from Operating Activities + Cash from Investing Activities + Cash from Financing Activities | (Click to expand)
Cash from Operating Activities Cash generated or used by the core business operations.
Cash from Investing Activities Cash used for or generated from investments in long-term assets, such as purchasing equipment or selling investments.
Cash from Financing Activities Cash flows related to borrowing, repaying debt, issuing stock, or paying dividends. |
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