The four main types of financial statements used by businesses include the cash flow statement, income statement, balance sheet and the statement of owners. The cash flow statement is used to assess the cash position of the business and gives vital insights regarding the cash inflows and the cash outflows. The cash flow statement is divided into 3 parts; operating, investing and financing. This statement gives an overview of the firm’s liquidity and it allows the investors of the company to assess the performance of the company even better.
The operating cash flow shows all the cash inflows and outflows associated with the operations of the company. This includes changes to the accounts receivable, payable, and inventory to name a few. The investing portion deals with investments in plants, machineries, and or equipment and the financing part deals with dividends, debts or loans.
The income statement is used to calculate the revenues, expenses, interest, taxes and the profits or losses made by the company within any given year. This statement can be made either by using a multi-step format or a single-step format. Again, the income statement is often subject to much scrutiny by the investors. The investors try to have an idea of how profitable the company is. In many cases, the investors also compare data in the form of a time series analysis to check the efficiency of the management.
The income statement shows the performance of the business for a given period of time, usually a year. Some income statements are also divided into operating and non-operating sections to give a better idea to the investors. Creditors also use the income statement to check whether the company will be able to repay their debts as they come due. After the taxes have been paid to the creditors the investors are the next in line to receive any dividends that may be declared.
The balance sheet is crucial in showing the assets and liabilities that the company has and it includes both short term and long-term liabilities. In the case of fixed asset; the assets can be either tangible or intangible in the form of goodwill, trademarks or patents owned by the company. It shows the financial position of the company at a specific date in the future which is why it is often referred to as the snapshot of the entire company.
The balance sheet is used by the creditors to check the total liabilities held by the company. This will also allow the creditors to find out the liquidity ratios of the company and assess the ability to repay the loans. Another crucial component of the balance sheet is the stockholders equity section. It shows the changes in the equity or ownership of the company and it of most interest to the investors.
The statement of owners is used to show the ownership information of the company and in large corporations shows the changes in the equity of the business. Due to this reason, this statement is often also referred to as the statement of retained earnings. This also shows the reconciliation between the opening and the closing balance of any given period. Some of the changes in the equity may include; dividends, investments of owners, withdrawal of capital by the investors as well as the transactions of treasury stock. The owners; especially the preferred and ordinary shareholders may be interested in this statement to check whether they will be entitled to the profits or not.
For the purpose of analysing the financial statements, the company Apple Inc has been selected. It is one of the biggest American Multinational company with boasts revenues of more than $100 billion dollars. The documents have been found from this link http://investor.apple.com/ and it also includes the latest traded stock information of the company. The statements presented in the annual report are the consolidated accounts of the company. The first statement is the statement of operations which is basically the income statement showing the profits made by the company. This statement is followed by the balance sheets for the convenience of the investors and creditors, who will be able to see the amount of profits made as well as the current and long-term liabilities made by the company.
The next statement in the report is the statement of owners; this shows the comprehensive income, share based compensation to the shareholders and the total reconciled shareholders equity. Next, the cash flow statement is also shown in the annual report which will help the management of the company manage their cash flows even better and give the investors a better understanding.
References
1. Apple Inc. (2011). Retrieved on 17th February 2012 from http://files.shareholder.com/downloads/AAPL/1702770918x0xS1193125-11-282113/320193/filing.pdf
