Financial Statement Analysis

Meaning Of Financial Statement: Three major Financial Statements

Financial statements are documented records that communicate the financial activities and conditions of a business or entity. Financial statements are supposed to convey the financial information and records of the entity in question as clearly and concisely as possible for both the business and for readers

Financial analysts depend on data to analyze the performance of, and make predictions about, the future direction of a company's stock price. The annual report which contains the firm's financial statements  is one of the most important resources of reliable and audited financial data.

The Four major financial statements are
  1. Income statement
  2. Statement of Retained Earnings
  3. Balance Sheet
  4. Statement of Cash flow
The Income Statement provides income information over a given period by subtracting expenditures from revenue which results to net income. The formula is stated below:  
Income = Revenue - Expense

The Statement of Retained Earnings helps to provide the ending balance of retained earnings for a current period. This is done by adding net income to the beginning balance of retained earnings and then subtracting dividends which results to the ending balance of retained earnings.
Retained Earnings = (Beginning Balance of Retained Earnings + Net Profit) - Dividends

The Balance Sheet just summarizes a company’s assets, liabilities, and stock holders’ equity at a specific time (typically end of fiscal year). Below is the general format of the balance sheet:
Assets = Liabilities + Stock Holder’s Equity

The Statement of Cash Flows is the movement in cash over a given period. This statement breaks down cash only transactions during a business cycle in one of the following types:
  1. Cash flows from operating activities
  2. Cash flows from investing activities
  3. Cash flows from financing activities
Operating activities include all cash flows made from normal business operations. Investing activities include cash flows from the disposition and acquisition of assets, which include real estate and equipment. Financing activities include cash flows from debt and equity investment capital over a period of time

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