What are Financial Statements, why are they important, and just why do financial analysts use them? Financial claims are formal information of the financial activities of a business. Income Statement: Reports a snapshot of a company’s business performance over a period of time. This statement indicates how much revenue (sales) is produced by a small business, and also accounts for direct product costs, general expenditures, Interest on Debt, Taxes, and other expense items.

The reason for this statement is to show the company’s degree of success, which is add up to a company’s Revenue net of its expenses. Balance Sheet Statement: Reports a snapshot of a company’s outstanding balances in various accounts at a particular point in time. The goal of this statement is to show a business’s financial heath at any given time, by enumerating it assets as well as the statements against them (liabilities and equity).

Statement of Cash Flows: Reports on all the company’s activities that affect its cash position over a period. These activities are divided into three principal categories: Operating, Investing, and Financing. The goal of this declaration is to give an in depth reconciliation of how the company’s Cash is being used (and the amount of money is being generated).

These financial claims all aim to provide an overview of a business’s performance and position, either over time or at confirmed time. They are interrelated and must tie together properly highly. For instance, in the Statement of Cash Flows, an in depth account of the change in a company’s Cash balances is given. This change must exactly match the change in Cash balances listed on the start and ending Balance Sheets for the business.

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Similarly, many items in the Income Statement directly reflect changes in Balance Sheet accounts over time and must match the visible changes there. More discussion of this concept are available by the end of the chapter. Financial statements are issued by companies and reviewed by the Securities & Exchange Commission (SEC).

The SEC requires publicly-traded companies to file quarterly and annual results of operations. These are the summarized financial results of the ongoing company, and they’re the backbone of financial modeling, company pitch, and information-book presentations. Without financial statements, most valuation work would be difficult or nearly impossible. All publicly-traded companies are required by the SEC to file quarterly and annual reports. Private companies are not required to file financial reports, even though some may need to if they have publicly traded debt.

Company filings are located on the SEC’s EDGAR website. Annual reports are submitted as 10-Ks with the SEC and must be submitted within 60 times of the company’s fiscal season end. Quarterly reports are submitted as 10-Qs with the SEC and have to be submitted within 40 days of the end of the fiscal one-fourth.

10-Qs are less detailed than annual form 10-Ks but do provide helpful fine detail round the quarterly Financial Data (Income Statement, Balance Sheet, and CASHFLOW), Management Discussion & Analysis, and other Company disclosures. The Income Statement shows how much Revenue (i.e., sales) has been generated by a small business and also accounts for Costs, Expenses, Interest, Taxes, and other items.

The main purpose of this statement is to show the company’s level of profitability. The Income Statement symbolizes items over a period, usually over 25 % (a few months) or a calendar year. This statement is also referred to as the Profit and Loss Statement (P&L). Income signifies the sales earned from selling a product or performing an ongoing service. Cost of Goods Sold (COGS) represents direct costs of producing goods and services that the business enterprise has sold, such as material costs and direct labor.

Selling, General, & Administrative Expense (SG&A) represents expenditures associated with selling products and handling the business. Depreciation & Amortization (D&A) signifies the expenditures associated with set property and intangible property which have been capitalized on the total amount Sheet. D&A that is directly related to production will generally be included in COGS and will be separated out on the Statement of Cash Flows (more with this later).