Historical Financial
Statements:
Financial statements are a crucial part of
understanding the financial health of a
company. These documents provide a
snapshot of a company's financial performance
over a specific period. They are essential for
those who use them to make informed
decisions about the company.
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Balance Sheet Statement
Assets
Assets represent the resources owned by a company that
have economic value. They are categorized into current
assets, which are expected to be converted into cash within
a year, and non-current assets, which have a longer lifespan.
Liabilities
Liabilities represent the obligations of a company to
external parties. They include current liabilities, which are
due within a year, and non-current liabilities, which have a
longer maturity.
Equity
Equity represents the ownership interest in a company. It
is calculated as the difference between assets and
liabilities and reflects the value of the company for its
shareholders.
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Income Statement
Revenue
Revenue represents the income generated by a
company from its primary business operations. This
includes sales of goods or services, interest income,
and other sources of revenue.
Cost of Goods Sold (COGS)
COGS represents the direct costs associated with
producing or acquiring the goods sold by a company.
This includes raw materials, labor, and manufacturing
overhead.
Gross Profit
Gross profit is the difference between revenue and
COGS, indicating the company's profit before
considering operating expenses.
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Income Statement
Operating Expenses
Operating expenses are the costs incurred by a
company to run its day-to-day operations, excluding
COGS. Examples include administrative expenses,
selling expenses, research and development, and
depreciation.
Operating Income
Operating income is the profit generated from a
company's core business activities before considering
interest and taxes.
Net Income
Net income is the bottom line of the income
statement and represents the company's profit after
all expenses have been deducted from revenue. It is
also referred to as the "profit after taxes" or "bottom
line."
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Cash Flows Statement
Operating Activities
This section focuses on the cash flows generated by the
company's core business activities. It includes changes in
working capital, such as accounts receivable, inventory,
and accounts payable, as well as cash received from
customers and paid to suppliers.
Investing Activities
This section covers cash flows related to the acquisition
and disposal of long-term assets, such as property &
plant. It also includes investments in other companies and
the proceeds from selling investments.
Financing Activities
This section reflects cash flows related to the company's
financing activities, such as issuing debt, paying dividends,
and repurchasing shares.
Net Change in Cash
The net change in cash summarizes the overall effect of
all cash flow activities on the company's cash balance
during the period.
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Importance of Financial Statements
Investors
Use financial statements to evaluate the company's
profitability, solvency, and growth potential before making
investment decisions.
Creditors
Assess the company's ability to repay debts by analyzing its
financial health and liquidity.
Management
Use financial statements to monitor the company's
performance, identify areas for improvement, and make
strategic decisions
.
Government Agencies
Require companies to file financial statements for tax
purposes, regulatory compliance, and oversight.
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