Three major financial statements are crucial to assessing a company’s overall financial performance and health while conducting a company analysis. The balance sheet, income statement, and cash flow statement are some of these statements.
1) Balance Sheet
The balance sheet provides a moment in time view of a company’s financial situation. It displays the company’s assets, liabilities, and equity. The assets are presented in decreasing order of liquidity, starting with the most liquid ones. In accordance with when they are due, the obligations are listed. After liabilities are subtracted, equity is the remaining ownership interest in the company’s assets. Understanding the company’s liquidity and solvency, as well as its capacity to pay its debts, is possible thanks to the balance sheet.
2) Income Statement
The income statement, commonly referred to as the profit and loss statement, displays the revenues, costs, and net income of a business for a given time frame. Understanding a company’s profitability and efficiency can be accomplished by looking at its income statement. It lists the company’s sales, selling prices, operational costs, and net profit. Calculations of crucial financial ratios like profit margin and return on investment are also done using the income statement.
3)Cash Flow Statement
The cash inflows and outflows of a business are examined using the cash flow statement. It displays the cash brought in by investing, operating, and financing activities. Understanding a company’s ability to create cash is important for understanding that company’s capacity to pay dividends, make investments, and pay off debt.
In conclusion, understanding a firm’s financial statements is crucial to comprehending the performance and general financial health of the company. The three main financial statements that shed light on a company’s liquidity, solvency, profitability, efficiency, and cash creation are the balance sheet, the income statement, and the cash flow statement. For investors, analysts, and managers to make wise decisions regarding the company, these remarks are essential.