Next video:
Loading the player...

Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial performance, its current conditions and its cash flow. 

There are four sections to a company’s package of financial statements. 

The balance sheet is usually presented first. This is a list of the company’s assets, liabilities and equity ownership. The account balances are as of the date listed on the financial statement.

The income statement is next, and is a tally of the company’s operational performance for the given period. The period is stated at the top of the income statement, and most often, is for a full year. However, publicly traded companies must produce financial statements quarterly and file them with the Security and Exchange Commission.

Next is the statement of cash flows. This statement lists the various changes to the cash account during the accounting period.  It also reconciles net income or loss to changes in cash. 

The final section of the financial statements is the explanatory notes. These notes provide more detail about various line items in the financial statements, such as inventory methods used, contingent liabilities and owner’s equity. 

All financial statements provided to outside parties should be presented in conformity with standardized accounting principles.  In the US, those principles are called general accepted accounting principles (GAAP).  In other parts of the world, they are referred to as International Financial Reporting Standards (IFRS). 

Related Articles
  1. Investing

    What are Financial Statement Assertions?

    Understand financial statement assertions and what they mean in accounting. For investors, it is important that assertions be accurate.
  2. Investing

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  3. Investing

    Why Financial Statements Are Harder to Read Than Ever Before

    Understand four major reasons that financial statements published in 2016 are more complicated and difficult to read than they were in the past.
  4. Insights

    Navigating Government and Nonprofit Financials

    Examining government & nonprofit financials can help you trace where your dollars are really going.
  5. Investing


    Learn more about the generally accepted accounting principles, standards and procedures that companies use to compile their financial statements.
  6. Investing

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  3. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  6. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
Trading Center