ANALYSIS OF FINANCIAL STATEMENTS AND TYPES OF FINANCIAL STATEMENTS

Financial statements analysis is something that every business does to understand and analyze its financial statements to make a better decision for the business. Analysis of financial statements is essential for both the shareholders and the employees of the business because, through this analysis, stakeholders understand the overall position of the business and estimate profit and loss according to that. Internally, it can be used to make decisions to manage finances. the financial statements record every accounting transaction on the business 

so that that can be evaluated later on for better decision-making. 

Analyzing financial statements

As we understand that analysis of financial statements is essential for any business to understand the financial position and then decide there, every business goes for GAAP( Generally Accepted Accounting Principles) to make financial statements. In the GAAP technique, companies are going for three financial statements: the balance sheet, the income statements, and the cash flow statements. 

Balance sheet

The balance sheet is something that shows the year-end company’s financial worth in terms of book value. The balance sheet goes around three things: assets, liability and stakeholders’ equity, an asset such as a company’s brand value cash that is going to be received by the bank takes a considerable part in financial statements and takes a lot about business. Liability is something a company’s need to pay, such as the company’s expenses and debts and that have a vital part on financial statements. Stakeholder’s equity is something a company’s needs to pay its stakeholders. Here in the balance sheet the company balances the assets and liabilities to equal stakeholders equity. And this figure is taken as the company’s book value. 

Cash flow statements 

Cash flow statements are financial statements of any company that provides a detailed view of the all-cash inflows that one company received from its ongoing operations and other external investment sources only. Here the financial company calculates the cash inflows and out flowers that company entirely within one financial year, and the result shows how much cash one company has with it at the end of the year. 

Income statements 

Income statements lead a company to the net profit or net loss that one company earn at the end of the year by calculating the revenue that one company earn against the experiences involved in the business on that year. Net profit or loss is something for which anyone is doing business. We can make by analysis of financial statements, and the company break down the Income into income and expenses that include within one year. 

Conclusion

Analysis of financial statements is essential for every business to understand the position of the business and take decisions according to that and so that the company can earn a good amount of net profit at the year-end. And for that, they are different tools available through which we can analyse our financial statements. The basic is these three balance sheets, cash flow and income statements. Other than this also now private sector uses many different tools to understand financial statements. 

Also, Read – Your Doubts About Reporting And Financial Statement Analysis Now Resolved