A financial report is a snapshot of the financial health of your business over a set period, typically a quarter or year. It includes data from your company’s balance sheet, income statement, and cash flow statement. It reveals how money moves in and out of your business, explains profits and losses, and offers insight into your possible trajectory. It’s a critical piece of information for investors, managers, and regulators to understand how your business is functioning and to make sound financial decisions.
While creating a financial report is a required business practice, it’s also an opportunity for businesses to showcase their performance and transparency to investors, lenders, and other stakeholders. In addition to meeting regulatory compliance standards, financial reports allow management teams to identify trends and areas of the business that are underperforming so they can take action to improve efficiency and drive growth.
The most commonly used financial reports include the profit and loss statement, balance sheet, and cash flow statement. The profit and loss statement shows your company’s total revenues and expenses over a given period, while the balance sheet displays your company’s current assets, liabilities, and shareholders’ equity. The cash flow statement measures how well your business generates cash to pay for expenses and investments, as well as meet recurring operating needs.
The financial statements also include footnotes that provide additional context and detail on the data presented in the primary financial statements. These might include accounting policies, contingencies, and risk management practices. In some cases, they might also include the Management’s Discussion and Analysis (MD&A) section which discusses market conditions, future projections, and other relevant business factors.