Financial statements are formal records that present the financial activities and position of a business, person, or other entity in a structured and easy-to-understand manner. They are used by investors, market analysts, and creditors to evaluate a companys financial health and earnings potential. There are four main types of financial statements, which include:
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Balance Sheet or Statement of Financial Position: This statement reports on a companys assets, liabilities, and owners equity at a given point in time. It shows what a company owns and owes and the difference between the two, which represents the book value of the stockholders stake in the company.
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Income Statement or Profit and Loss Statement: This statement shows how much money a company made and spent over a period of time. It reports on a companys revenues, costs of goods sold, taxes, and net income or loss.
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Cash Flow Statement: This statement shows the exchange of money between a company and the outside world over a period of time. It reports on a companys cash inflows and outflows from operating, investing, and financing activities.
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Statement of Shareholders Equity: This statement shows changes in the interests of the companys shareholders over time. It reports on a companys stock issuances, repurchases, and dividends paid.
Financial statements are essential tools for running a business, planning its future course, and making educated financial decisions to ensure its success.
