Financial_Statement_Differentiation

Financial Statement Differentiation There are four main types of financial statements used by companies and investors to determine how a company is doing financially. The four financial statements are the balance sheets, income statements, cash flow statements, and statements of shareholders’ equity. An explanation of each of the four main financial statements will be given. Determining which financial statement or statements would be of most interest to investors, creditors, and management will be made. “A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity” (Beginners' Guide to Financial Statements, 2007). Balance sheets show what exactly the company owns and owes at any given time. Assets are anything of value that the company owns that can be sold to make a profit or can be used to make something that can be sold to make a profit. Liabilities are any type of money that the company owes to another company or person. The shareholders’ equity is the net worth of the company. A company’s balance sheet lists the company’s assets on one side of it and the company’s liabilities and shareholders’ equity on the other side. Both sides of the balance sheet should be equal to one another. This statement would be of most interest to management (Beginners' Guide to Financial Statements, 2007). “An income statement is a report that shows how much revenue a company earned over a specific time period” (Beginners' Guide to Financial Statements, 2007). An income statement can also include how much money a company spent along with how much the company made. On an income statement the company will start with the gross revenue and show each amount that will be subtracted from that amount and list what was spent on. After all subtractions or deductions have been taken from the gross revenue one can reach what is termed the net profit. The net profit is what the company actually made for the given period of time. This statement would be of most interest to creditors and management (Beginners' Guide to Financial Statements, 2007). “Cash flow statements report a company’s inflows and outflows of cash” (Beginners' Guide to Financial Statements, 2007). This type of statement is very important because it shows if the company is able to afford to operate based on its expenses. The three parts to a cash flow statement are operating activities, investing activities, and financing activities. These parts show the different types of cash flowing in and out of the company. This type of statement would be of most interest to creditors and investors (Beginners' Guide to Financial Statements, 2007). “Shareholders’ equity is the amount owners invested in the company’s stock plus or minus the company’s earnings or losses since inception” (Beginners' Guide to Financial Statements, 2007). The shareholders’s equity statement shows potential and current investors what the worth of the company based on each share. If the price per share of stock goes up it can be determined the company is doing well as there are more dividends being earned and vise versa. This statement would be of most interest to investors (Beginners' Guide to Financial Statements, 2007). Balance sheets show what exactly the company owns and owes at any given time. Both sides of a balance sheet should be equal to one another. An income statement can also include how much money a company spent along with how much the company made. The net profit on the income statement is what the company actually made for the given period of time. The cash flow statement is very important because it shows if the company is able to afford to operate based on its expenses. The shareholders’s equity statement shows potential and current investors what the worth of the company based on each share. Each financial statement is important and gives different information about the company. Reference Beginners' Guide to Financial Statements. (2007, February 05). Retrieved September 11, 2012, from U.S. Securities and Exchange Commission: http://www.sec.gov/investor/pubs/begfinstmtguide.htm