Definition of financial statements: A periodic report which discloses the financial performance and financial position of a company, along with other necessary disclosures.
What are financial statements?
Financial statements are the published financial results of a company. They usually take two main forms:
Glossy annual reports – public companies only
Attractive, glossy annual reports which are hundreds of pages long and include lengthy commentary from key executives, as well as policies, detailed financial information.
These are only published by publicly traded companies, such as those listed on the London Stock Exchange. The regulations that govern public companies require them to make the accounts available to shareholders and the public.
They are usually published within 3-4 months of the end of a financial year. Therefore for a company with a 31 December year-end, they should be available in April of the following year.
Company accounts – all companies
Simpler company accounts which are filed each year with Companies House (in the UK), to fulfil the statutory obligation of annual filings.
These are filed by every company, whether public or private limited. They only need to be filed within 9 months of the end of the year for private companies or 6 months for public companies.
How can I find financial statements
Public company annual reports can be found on the investor relations section of any corporate website. Look for ‘annual reports’ or ‘investor information’ and select which year.
For annual accounts, Companies house allows the public to download PDFs of the accounts of any company for free here.
The best financial accounting books will include some illustrative examples of real or fictitious financial statements to allow you to study their general format.
Who are the users of financial statements?
There are many stakeholders with an interest in understanding the financial performance or the financial stability of a company.
Shareholders will review the financial statements to measure the profitability, look at trends, and assess what assets could be distributed as dividends.
Banks will look at financial statements to understand the creditworthiness of the business, and perhaps to assess what assets a debenture could be secured against, or what overdraft limit to set.
Customers will look at financial statements of possible suppliers to check that the company looks to be in a secure enough position to be able to fulfil a long term contract.
The tax authorities may reference financial statements to double check tax filings and other disclosures made by the company
Journalists and other public groups may be interested in other mandatory disclosures made by the company on matters such as environment impact, modern slavery commitments and governance.
How is the phrase financial statements used in a sentence?
Here’s a couple of sentences using the phrase ‘financial statements’ in a sentence:
“If you look at page 6 of the financial statements, you will notice that the company has disclosed a political donation of £6,000.”
“The company reported £500,000 of capital expenditure in last year’s financial statements.”
What else you should know about financial statements
Financial statements typically follow the following format:
- Company name and basic information
- Reports of the directors or executives, such as the CEO/Managing Director/Chairman, the CFO / Finance Director and the chair of committees such as the audit & risk committee and the remuneration committee. Expect to read about strategy, whether the company met its budget and its forward-looking priorities.
- The audit report, signed by a third-party registered auditor
- The income statement, also known as the profit & loss account or the statement of comprehensive income. This shows revenues, cost of goods sold, other expenditure, and different measures of profit.
- The balance sheet, also known as the statement of financial position, which shows the net assets and the value of shareholders’ equity.
- The cash flow statement
- The notes to the accounts, which provide breakdowns of figures in the profit & loss account, balance sheet or cash flow statement
- A statement of ownership, where the company declares their parent company (if any) and their ultimate controlling party (if any).
How does the definition of financial statements relate to investing?
Financial statements are a rich source of information for an investor, analyst or research who is evaluating a business.
Financial statements contain both financial and non-financial information, such as assets and liabilities, as well as strategy and policy. They’re a great way to understand more about how a business is structured, what its objectives are, and how well it is achieving them.