Financial Statements

Overview

Financial statements are recorded data, compiled in a structured way, representing a business’s financial condition and performance.
They are important for a business’s financial decisions and help assure stakeholders about a company’s tangible progress.
Financial statements provide information about revenue, expenses, assets, liabilities, and cash flows of a business.

Balance Sheet: Shows a snapshot of a company’s financial status at a particular point in time by detailing assets, liabilities, and the owners’ equity.
Income Statement (also known as Profit and Loss account): Reports the company’s revenues, costs, expenses, and overall profit or loss over a set period.
Cash Flow Statement: Analyses changes in cash and cash equivalents, categorising the cash flow under operations, investing, and financing activities.
Statement of Changes in Equity: Illustrates the variations in the equity of the business over time, involving changes in share capital, reserves, and retained earnings.

Assets: Items of value owned by a business, subdivided into current assets (expected to be converted into cash within one year) and non-current assets (intended for long-term use).
Liabilities: Amounts owed by a business to creditors, categorised as current liabilities (due within one year) and non-current liabilities (due after more than one year).
Owners’ Equity: The net value of a company after deducting liabilities from the assets, also referred to as net assets.

Revenue: The total money generated by selling goods and services.
Cost of Goods Sold (COGS): The direct costs of producing the goods or services sold.
Operating Expenses: Costs associated with the day-to-day operations of a business, excluding direct production costs.
Net Income: The final profit or loss after deducting all expenses from revenue.

Cash Flow from Operating Activities: Involves cash transactions related to a company’s normal business operations.
Cash Flow from Investing Activities: Pertains to changes in physical assets, investments, and long-term financial assets.
Cash Flow from Financing Activities: Includes cash flow to and from investors like banks and shareholders.

Opening Equity: Indicates the total equity at the start of the period.
Net Profit/Loss: Obtained from the income statement, it either adds to or subtracts from the opening equity.
Dividends: Share of profits distributed to shareholders, reducing the retained earnings.
Closing Equity: The result of adding or subtracting all changes from the opening equity.