Financial statements are an essential component of bookkeeping services for small businesses. In this blog post, we'll look at the purpose of financial statements and how they could help stakeholders and enterprises.

3 significant financial statements

Analysts frequently use the following three primary financial statements to assess a company's financial health and performance:

1. The Balance Sheet: 

A balance sheet is a statement that provides a fast overview of a corporation's assets, liabilities, and equity at a given point in time. It lists the resources (assets) available to a firm as well as the claims made against those resources (liabilities and equity).

In order for the balance sheet to be regarded as accurate, the assets must be equal to the liabilities and equity. The following equation exemplifies this:

Assets = Liabilities + Equity

2. The Income Statement: 

An income statement sometimes referred to as a profit and loss statement, is a financial document that details a company's earnings and outlays during a certain time period, typically a fiscal quarter or year. The income statement must include information about a company's profitability for the reporting period.

3. The Cash Flow Statement: 

A cash flow statement is a type of financial statement that shows how money moves inside a company over a given period of time. Operating cash flows, investment cash flows, and financing cash flows make up the statement's three main parts.

The ability to create cash, pay bills, sustain operations, and make investments, as well as a cash flow forecast, are all detailed in a cash flow statement, which is a crucial tool for assessing a company's financial health.

Business Use of Financial Statements:

1. Planning: They can be used to create an organization's financial strategy, which comprises setting financial goals and predicting future financial performance.

2. Making decisions: They give managers and business owners the knowledge they need to decide where to allocate their resources wisely, for as by investing in new machinery or entering new markets.

3. Performance assessment: They can be used to assess the long-term financial performance of an organization. This may serve as a reference for strategic decisions when identifying assets and liabilities.

4. Stakeholder communication: It is essential for firms to disclose financial information to all of their stakeholders, including shareholders, creditors, and regulatory bodies.

5. Compliance: They frequently need to satisfy legal and administrative obligations, like tax laws and securities laws.

6.Credit and funding: Credit and funding are frequently used by banks and other lenders to assess a company's creditworthiness and decide whether to grant it a loan or other forms of financing.

Use of financial statements by stakeholders:

Different stakeholders use them to aid in making wise business decisions. They are used by stakeholders in the following ways:

1. Shareholders: Shareholders use them to assess the organization's financial standing and prospects for the future. These declarations can be used to evaluate both the management's effectiveness and the degree of risk associated with an investment in the company.

2. Creditors: These statements are used by creditors, including banks and other lenders, to evaluate a company's creditworthiness and decide whether or not to extend credit or financing to it.

3. Analysts: Financial analysts use them to examine a company's financial health and performance and make recommendations to investors.

4. Regulators: They are employed by regulatory bodies like the Securities and Exchange Commission (SEC) in the US to make sure that businesses follow by the law and regulations and to safeguard the interests of investors.

5. Customers: In certain circumstances, customers may utilize these to assess a company's dependability and financial stability before doing business with it.

Do you want to manage your financial accounts effectively?

Bookkeeping services for small businesses can be outsourced to ensure accuracy and dependability in the preparation and maintenance of financial accounts.

With more than 22 years of experience providing accounting and bookkeeping services to small businesses, IBN Tech is the market leader in this sector. Contact us right away to learn more about how these services can help you.