Companies use financial statements to report financial information about their businesses. These documents provide readers with a snapshot of the company’s financial health at a specific point in time. Financial statements include three types of information: the company’s assets, liabilities, and equity; the company’s net worth; and the company’s cash flow from operations. Financial statements have two purposes: first, to provide factual information about the company’s operations; and second, to allow investors and lenders to make informed decisions about their investments in the company and the company’s ability to repay debt. Financial statements are often evaluated by investors and lenders based on three key factors: The company’s financial health and its ability to repay debt;The company’s growth potential; and The company’s management team’s ability to implement its strategic plans. The information provided in a company’s financial statements is extremely important when making financial decisions about investing in a company or lending to it. Investors and lenders often look at the information provided in financial statements and compare it to their own business metrics to determine whether the company is worth investing in or lending to. Financial statements must be audited by an independent third-party in order to provide investors and lenders with accurate information. An experienced CPA will be able to identify potential issues with the company’s financial health and explain these issues to investors and lenders.
The assets section primarily focuses on the company’s tangible assets, such as inventory, accounts receivable, property, equipment, and other assets. These assets are listed by the company at their fair market value. The company may choose to list these assets at their historical cost, which is the cost of purchasing each asset. The company’s accounting policies for determining the fair market value of its assets will vary from industry to industry. When analyzing the information provided in the assets section, investors should focus on how the assets are valued. Investors should also be on the lookout for any assets that do not appear on the balance sheet. When evaluating the company’s assets, investors should be aware of the following: The company’s accounting policies for valuing its assets. The company’s historical cost when valuing its assets. The company’s current fair market values for its assets.
The liabilities section primarily focuses on the company’s current and future obligations, such as accounts payable, operating leases, and tax liabilities. The company’s liabilities are listed by the company at their fair market value. The company’s accounting policies for determining the fair market value of its liabilities will vary from industry to industry. When analyzing the information provided in the liabilities section, investors should focus on how the company’s liabilities are valued. Investors should also be on the lookout for any liabilities that do not appear on the balance sheet. When evaluating the company’s liabilities, investors should be aware of the following: The company’s accounting policies for valuing its liabilities. The company’s historical cost when valuing its liabilities. The company’s current fair market values for its liabilities.
The equity section primarily focuses on the company’s stockholder’s equity, which is a company’s net worth. The company will choose to list its stockholder’s equity at the book value or the last completed fiscal year’s ending stockholder’s equity. The company’s accounting policies for determining the book values of its stockholder’s equity will vary from industry to industry. When analyzing the information provided in the equity section, investors should focus on how the company’s stockholder’s equity is valued. Investors should also be on the lookout for any equity that does not appear on the balance sheet. When evaluating the company’s stockholder’s equity, investors should be aware of the following: The company’s accounting policies for valuing its stockholder’s equity. The company’s historical cost when valuing its stockholder’s equity. The company’s current fair market values for its stockholder’s equity.
The cash flow from operations section primarily focuses on the company’s cash flow from operations, which is determined by the company’s income from operations, depreciation, and changes in working capital. Cash flow from operations is an important indicator of the company’s financial health. Companies with healthy cash flows generally have more financial flexibility and can meet unexpected expenses. Investors and lenders often evaluate the information provided in a company’s cash flow from operations section to determine the company’s financial health. The information provided in a company’s cash flow from operations section is extremely important when making financial decisions about investing in a company or lending to it. Investors and lenders often look at the information provided in financial statements and compare it to their own business metrics to determine whether the company is worth investing in or lending to. Financial statements must be audited by an independent third-party in order to provide investors and lenders with accurate information. An experienced CPA will be able to identify potential issues with the company’s financial health and explain these issues to investors and lenders.
Financial statements provide important information about a company’s financial health and operations. Financial statements should be audited by an independent third-party in order to provide investors with accurate information. When analyzing the information provided in financial statements, investors should focus on the company’s assets, liabilities, and equity; the company’s net worth; and the company’s cash flow from operations.