Three Financial Statements

Financial statements are reports issued by a company that describe the financial activities of the company. The financial statements are broken down into three different statements:

• Income Statement – shows the income and expenditure of the company, including things such as depreciation, income tax, interest income etc.
• Balance Sheet – shows the assets, liabilities and shareholders equity of a firm; it must always balance (i.e. assets = liabilities + shareholders equity).
• Cash Flow Statement – shows the inflows and outflows of cash and shows whether the firm is actually making or losing money.

Financial statements are usually issued on a quarterly and / or yearly basis and are audited by independent firms. The future performance of a firm is modeled using the financial statements and projecting into the future using appropriate assumptions.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Accounts Receivable Turnover Ratio
• Marginal Cost Formula
• Nash Equilibrium