Financial reporting can vary from financial discussion to anything within the business and also outside the business like press releases, financial reports, etc. To give a simple definition, financial statements are formal records of activities of a company, about its business position or of a person. It is the process of disclosing a company's financial records to the government and the investors.
The management will issue a report based on the discussion and analysis of the company. This will be about the company's current position and how it will manage its future ventures too. According to this report, the investors and creditors can decide upon whether to stay or not. Other than that, the company can also discuss its liquidity and debt status through financial reports. The financial statement can also include the profit of the company, not only its debt.
To analyze the financial statement, there are several techniques used. They are:
- Horizontal analysis
- Vertical analysis and
- Ratio analysis.
In horizontal, the horizontal analysis of data across two or more years is calculated. Vertical analysis across the vertical line and covers the other part of the business. The ratio is related to statistics and does the ratio metrics to maintain statistical relationships. Every company has three or four financial statements that need to be discussed. They are:
- Income statements
- Balance sheets
- Cash flow statement
- Statement of retained earnings