What is a financial statement?
The financial statement of a company comprises the balance sheet, the income statement, the statement of retained earnings and a cash-flow statement. In most jurisdictions, corporations are required to published a financial statement at set intervals, although the frequency and level of details will vary from country to country.
Where have you heard about financial statements?
Both the profit and loss account and the balance sheet are likely to be mentioned in the business press and other financial media whenever a significant enterprise presents its accounts. They will be scrutinised for signs of the health of the business.
What you need to know about financial statements...
The profit and loss account looks at the performance of the business in terms of revenues coming in, costs going out and profit or loss when the second is deducted from the first. It tells investors what are the earnings per share and what dividend is being paid, if any.
The balance sheet looks at the same business but in a different way, this time in terms of its assets and liabilities. Assets include cash, bonds and money owed by customers, liabilities include debt and wages due.
The statement of retained earnings shows how a company's profits are divided between dividends for shareholders and cash kept on the balance sheet.
The cash-flow statement, as the name suggests, is concerned with the flow of cash in and out of the company.