What is a financial statement?
A financial statement must be prepared by every company at the end of a financial year to ensure transparency and financial stability. It provides a comprehensive overview of the financial health and economic performance of a company during the past financial year.
Why is the financial statement important?
The financial statement is crucial as it provides stakeholders such as investors, lenders, customers, and suppliers insights into the financial situation of the company. It helps assess the financial performance and stability of the company, aiding in decision-making. For investors, the financial statement is pivotal in evaluating the profitability of their investments, while lenders use it to assess the creditworthiness of the company.
What components does a financial statement have?
Balance Sheet: The balance sheet depicts the financial position of the company at a specific point in time, typically at the end of the financial year. It includes information on assets (such as cash, investments, and receivables) and liabilities (such as debts and obligations).
Income statement: The income statement, also known as the profit and loss statement, illustrates the revenues, costs, and the profit or loss of the company during the fiscal year. It provides insights into the financial performance of the company.
Cash Flow Statement: This statement tracks the movement of money in and out of the company. It shows how the company finances its operational activities and whether it operates with liquidity efficiency.
Statement of Changes in Equity : This statement reveals changes in the company's equity, such as capital increases, dividends, or retained earnings.
How does the financial statement for startups differ from established companies?
For startups, the financial statement may exhibit some differences due to their unique financial situation. Startups often prioritize growth over profit in their initial years, so their financial statement may show losses, whereas established companies are typically profitable. Startups should explicitly highlight their investment activities and capital raising in the financial statement, as these are crucial for growth financing.
Conclusion
The financial statement provides investors and other stakeholders with insights into the financial health and performance of a company. Both established companies and startups must carefully work on creating an accurate and meaningful financial statement. This financial document serves not only for legal compliance but also for decision-making and building trust with investors and lenders. Startups, in particular, should pay attention to clearly communicating the financial challenges and opportunities associated with their growth in their financial statements.