A financial statement is a type of report or formal record that companies and people usually use to keep track of the different economic activities that they carry out. These documents give an analysis called financial statement analysis and they allow more expensive handling of the financial information for better decision making that benefits the company
These reports show the accounting information of a year, or of a certain period that you want to know of the company’s operations. By observing the accounts for this period, it’s possible to know the profitability and solvency of the company.
The information provided is shown in a structured manner and composed by the following financial statements:
It is defined as the accounting document that informs about the situation of the company, presenting its rights and obligations, as well as its capital and reserves, valued according to generally accepted accounting criteria.
In the Balance are shown:
- Asset: Cash, money deposited in the bank or property.
- Liabilities: Debts of the company with banks, suppliers, and other financial entities.
- Net worth: Contributions made by the partners and benefits generated by the company.
Compare the income of the company with the costs of it, and show if there has been benefits to pay dividends. Within this, we have two elements:
- Income: these are inflows of resources or elimination of obligations that generate increases in equity.
- Expenses: outflows of resources that decrease assets or increase liabilities.
As its name implies, what this report presents are movements of income and expenses within a company, to have knowledge of the amount of capital existing at the end of a period.
State of change in equity
Document shows a comparative analysis of the variations between inflows and outflows of the company, during the beginning and end of the period.
It is a document used in accounting that serves to expand the information contained in the annual accounts. Thus, the report must be presented and prepared jointly with the other financial statements.
It is part of the annual accounts of the companies.
The function of this financial statement is to complete, expand, comment, and clarify the rest of the documents that are included in the annual accounts.
But in this article, we want to tell you about where you can get your financial statement analysis, so you’ll know that the law obliges commercial entities to deposit their annual accounts in the Mercantile Registry and also to use it in case a lender requests it.
This obligation involves the following process that is marked by the deadlines established by law:
- The administrators prepare the financial statements for the year.
- They must be approved by the General Meeting (made up of the partners or shareholders).
- Once approved, they must be deposited in the Mercantile Registry of the entity’s domicile.
The importance of this lies in the fact that the Commercial Registry is public, which means that the information it contains can be consulted by anyone.
This basically implies that:
- Anyone can access the annual accounts (each of its financial statements) of any entity.
- The annual accounts of your company (if it is the case) can be seen by anyone who requests it.
However, financial statements are not a magic solution to the negative financial situations of the company.
Once the above points have been evaluated, the financial analysis must go through the following three stages:
In this first stage, all the information collected thanks to the financial statements is evaluated, determining which is true and which is distorted to avoid failures in decision-making.
After the information is filtered, a strategy is elaborated either to continue expanding the positive aspects or correct the negative ones.
At this point, it is important to produce reports that fullfill the objectives that must be met, delimited by periods of time to ensure compliance.
Here, the specific details of decision making are obtained, the analysis is concluded and the execution of financial strategies begins based on the results obtained from the financial statements.
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Financial statements, both general and specific, are the basis of corporate financial management since the analysis of these statements determines the path that the board of directors will take to guarantee the economic growth of the organization.
That’s why financial statements are important for managing the financial decisions of the company and knowing its performance, development, and growth.
It also includes the factors that affect it, comparing the financial statements of different periods and demonstrating solvency to creditors.
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