Financial statements form the basis for evaluating a company’s financial well-being and guiding decision-making. Whether you’re an investor, business owner, or financial analyst, understanding these reports is essential. This guide breaks down the main types of financial statements, their purposes, and how they help in financial decision-making.
Also read: What is a Financial Statements?
Balance Sheet
A balance sheet presents an overview of a company’s financial status at a given moment. It details three key components:
Assets: What the company owns
- Cash & Cash Equivalents: Highly liquid assets like cash, treasury bills, and certificates of deposit.
- Accounts Receivable: Outstanding payments owed by customers.
- Inventory: Goods available for sale.
- Property, Plant, & Equipment (PPE): Long-term assets like machinery and buildings.
- Investments: Holdings in stocks, bonds, or other financial instruments.
- Intangible Assets: Trademarks, patents, and goodwill.
Liabilities: What the company owes
- Accounts Payable: Outstanding supplier payments.
- Wages Payable: Salaries due to employees.
- Debt Obligations: Short-term and long-term loans.
- Dividends Payable: Declared but unpaid shareholder distributions.
- Retained Earnings: Profits reinvested into the company rather than distributed as dividends.
- Common & Preferred Stock: Funds raised through equity issuance.
The balance sheet helps investors assess a company’s asset value, debt obligations, and overall financial stability.
Income Statement
Unlike the balance sheet, which is a snapshot, the income statement covers a financial period (e.g., a quarter or year) and tracks revenue, expenses, and profits.
Key Components:
- Revenue: Income from core business activities.
- Operating Revenue: Sales of products/services.
- Non-Operating Revenue: Interest, royalties, and investment income.
- Expenses: Costs incurred to generate revenue.
- Cost of Goods Sold (COGS): Direct costs of production.
- Selling, General & Administrative Expenses (SG&A): Overheads like marketing and salaries.
- Depreciation & Amortization: Reduction in asset value over time.
- Net Income: Also known as profit. Calculated by deducting expenses from revenue.
The income statement helps investors gauge profitability trends and cost efficiency over time.
Also read; How to Make a Financial Statement: A Step-by-Step Guide
Cash Flow Statement
A cash flow statement (CFS) shows how a company generates and uses cash. It is divided into three sections:
- Operating Activities: Cash earned and spent through business operations (e.g., sales revenue, wages, taxes).
- Investing Activities: Cash used in buying/selling assets (e.g., real estate purchases, stock investments).
- Financing Activities: Cash transactions with investors and creditors (e.g., dividends, stock issuance, loan repayments).
The CFS helps stakeholders understand cash liquidity and financial flexibility.
Also read: How to Read a Financial Statement: A Guide for Dummies
This statement details changes in equity over time, tracking:
- Beginning Equity: Equity from the previous period.
- Net Income: Profits added to retained earnings.
- Dividends: Cash payments to shareholders.
- Other Comprehensive Income: Unrealized gains/losses from foreign exchange, pensions, or investments.
Key Takeaway: Investors use this statement to assess how well a company reinvests profits and manages shareholder returns.
Understanding financial statements is key to making informed business and investment decisions. Whether you’re a small business owner or a large-scale investor, mastering these reports will give you a competitive edge.
Also read: 6 Limitations of Financial Statements
Financial Statement Preparation in Indonesia
Accurate financial statements are crucial for business success in Indonesia, and many companies turn to professional services to ensure full compliance with accounting standards and tax regulations.
By partnering with experts, businesses can rest assured that their financial reports meet Financial Accounting Standards and requirements, providing reliable data for smart decision-making. Professional services also save valuable time and resources while offering deeper insights into financial performance and trends to support strategic growth.
At InvestinAsia, we specialize in crafting customized financial statements that align with both local and international standards. Our team of professionals is dedicated to delivering precise, compliant, and insightful financial reports that empower your business to make confident decisions.
Discover how we can help your business succeed—visit InvestinAsia’s Accounting and Financial Statement Services today.
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reference: Investopedia
