Financial Statements: List of Types and How to Read Them

Instead of reporting just $23.5 billion of net income, ExxonMobil reports nearly $26 billion of total income when considering other comprehensive income. Below is a portion of ExxonMobil Corporation’s income statement for fiscal year 2021, reported as of Dec. 31, 2021. Investors can also see how well a company’s management is controlling expenses to determine whether a company’s efforts in reducing https://kelleysbookkeeping.com/faqs-on-the-2020-form-w/ the cost of sales might boost profits over time. Expenses that are linked to secondary activities include interest paid on loans or debt. Other income could include gains from the sale of long-term assets such as land, vehicles, or a subsidiary. Once you have calculated a ratio for the current period, you can compare it against previous periods to understand how the company is performing over time.

10-K reports are organized per SEC guidelines and include full descriptions of a company’s fiscal activity, corporate agreements, risks, opportunities, current operations, executive compensation, and market activity. You can also find detailed discussions of operations for the year, and a full analysis of the industry and marketplace. This article will teach you more about how to read a cash flow statement. With a cash flow statement, you can see the types of activities that generate cash and use that information to make financial decisions.

What Are the Benefits of Financial Statements?

Cash from operations includes any changes made in cash accounts receivable, depreciation, inventory, and accounts payable. These transactions also include wages, income tax payments, interest payments, rent, and cash receipts from the sale of a product or service. The rules used by U.S. companies is called Generally Accepted Accounting Principles, while the rules often used by international companies is International Financial Reporting Standards (IFRS). In addition, U.S. government agencies use a different set of financial reporting rules. Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about the future direction of the company’s stock price. One of the most important resources of reliable and audited financial data is the annual report, which contains the firm’s financial statements.

This process of spreading these costs is called depreciation or amortization. The “charge” for using these assets during the period is a fraction of the original cost of the assets. Shareholders’ equity is the amount owners invested in the company’s stock plus or minus the company’s earnings or losses since inception. Financial statements have been created on paper for hundreds of years.

Supplementary Notes

While cash flow refers to the cash that’s flowing into and out of a company, profit refers to what remains after all of a company’s expenses have been deducted from its revenues. If you’re new to the world of financial statements, this guide can help you read and understand the information contained in them. The financial statement tells if the business is profitable, if it will stay profitable and if there are any large problems looming, such as a continuous drop in sales over time. Reading the financial statement will give an overall view of the condition of the business and if there are any warnings signs of possible future problems. Assets are generally listed based on how quickly they will be converted into cash. Current assets are things a company expects to convert to cash within one year.

• Primary expenses are incurred during the process of earning revenue from the primary activity of the business.
• Reported assets, liabilities, equity, income and expenses are directly related to an organization’s financial position.
• United States’ companies apply GAAP for the preparation of financial statements.
• Cash from operations includes any changes made in cash accounts receivable, depreciation, inventory, and accounts payable.
• Paired with mentorship opportunities at your organization, this can be a great way of learning the basics, but it isn’t your only option.

For example, some investors might want stock repurchases while other investors might prefer to see that money invested in long-term assets. A company’s debt level might be fine for one investor while another might have concerns about the level of debt for the company. In ExxonMobil’s statement of changes in equity, the company also records activity for acquisitions, dispositions, amortization of stock-based awards, and other financial activity. This information is useful to analyze to determine how much money is being retained by the company for future growth as opposed to being distributed externally.

Overview of the Three Financial Statements

Another concern is that financial statements are entirely historical in nature, and so can be misleading when used to project the future results of a business. An often less utilized financial statement, a statement of comprehensive income summarizes standard net income while also incorporating changes in other comprehensive income (OCI). Other comprehensive income includes all unrealized gains and losses that are not reported on the income statement. This financial statement shows a company’s total change in income, even gains and losses that have yet to be recorded in accordance to accounting rules. The operating activities on the CFS include any sources and uses of cash from running the business and selling its products or services.

Liabilities refer to money a company owes to a debtor, such as outstanding payroll expenses, debt payments, rent and utility, bonds payable, and taxes. Financial statements offer a window into the health of a company, which can be difficult to gauge using other means. While accountants and finance specialists are trained to read and understand these documents, many business professionals are not. An ability to understand the financial health of a company is one of the most vital skills for aspiring investors, entrepreneurs, and managers to develop.

Operating Activities

Net income from the income statement flows into the balance sheet as a change in retained earnings (adjusted for payment of dividends). Financial statements and their supplementary notes are prepared in compliance with What Is A Financial Statement? accounting frameworks such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). United States’ companies apply GAAP for the preparation of financial statements.

• The “charge” for using these assets during the period is a fraction of the original cost of the assets.
• To do this, it adjusts net income for any non-cash items (such as adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities.
• Although this brochure discusses each financial statement separately, keep in mind that they are all related.
• We can see the three areas of the cash flow statement and their results.
• When preparing a financial statement for such purposes the best practice is to use general accountancy language, understood by all parties.
• It shows an entity’s assets, liabilities, and stockholders’ equity as of the report date.
• Other income could include gains from the sale of long-term assets such as land, vehicles, or a subsidiary.

The answer to this question is in the definition; it is the complete report on the health of the business taking in cash flow, income and the balance sheet. The financial statement determines if a business has to ability to repay loans, if it has the cash flow to meet bills and purchase stock. It will also tell from where the business is generating cash and where the cash goes. Interest income is the money companies make from keeping their cash in interest-bearing savings accounts, money market funds and the like. On the other hand, interest expense is the money companies paid in interest for money they borrow.

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