Financial Statements

The four financial statements include: balance sheet, income statement, statement of retained earnings and cash flows. A balance sheet identifies the financial health of a company based on their assets, liabilities, and stockholder's equity for a specific date. An income statement reports the company's revenue and expenses. The statements of retained earnings display the company's changes in retained earnings during a certain amount of time. Statements of cash flows present the company's activities: operations, investments and finances, requiring cash flow. Companies use financial statements for a variety of situations. Companies use financial statements to heighten capital opportunities, financing, and to create budgets. The financial statements allow investors the information necessary to make the appropriate investment decisions. Financial statements are an important component when companies are seeking to obtain a loan. Banks utilize these statements as a way to verify the company's revenue and cash flow. The statements are also help managers of different departments create their budgets. The different departments can retrieve the statements to get an understanding of how the department is doing, as a whole, and how it will affect the decisions made creating their annual budgets. Depending on the reason for the use of the statements, if a company was trying to seek additional financing for the expansion of operations or to purchase new office equipment, then a balance sheet would be the most important financial statement would be the balance sheet. A balance sheet shows banks what the debt to income ratio and provides the evidence needed to get additional financing. In addition, management would use a balance sheet in order to project their annual budgets.

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