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A Comprehensive Guide to Quickbooks Accounting Software
QuickBooks is a popular accounting software program used by millions of small businesses around the world. It is designed to help business owners manage their finances, track expenses, and generate financial reports. In this comprehensive guide, we will cover the basics of QuickBooks and how it can help you manage your business’s finances.
What is QuickBooks?
QuickBooks is an accounting software program designed to help small business owners manage their finances. It allows users to track expenses, create invoices, and generate financial reports. The software also includes features such as payroll management, tax filing, and inventory tracking. QuickBooks is available in both desktop and online versions, so users can access their data from anywhere.
Benefits of Using QuickBooks
QuickBooks offers many benefits for small business owners. It helps them save time by automating tedious tasks such as invoicing and payroll management. The software also makes it easy to track expenses and generate financial reports. Additionally, QuickBooks allows users to access their data from anywhere with an internet connection.
How to Get Started with QuickBooks
Getting started with QuickBooks is easy. First, you need to decide which version of the software you want to use – desktop or online. Once you’ve chosen a version, you can download the software or sign up for an online account. After that, you can start entering your business’s financial information into the software and begin using its features.
QuickBooks is a powerful accounting software program that can help small business owners manage their finances more efficiently. With its easy-to-use features and automated tasks, it can save time and money while providing accurate financial information. If you’re looking for an accounting solution for your business, consider giving QuickBooks a try.
This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.
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What Are Financial Statements?
- Their Purpose
Income statement, cash flow statement.
- Changes In Equity
- Comprehensive Income
Nonprofit Financial Statements
The Bottom Line
- Corporate Finance
Financial Statements: List of Types and How to Read Them
Investopedia / Julie Bang
Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. For-profit primary financial statements include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar but different set of financial statements.
- Financial statements are written records that convey the business activities and the financial performance of an entity.
- The balance sheet provides an overview of assets, liabilities, and shareholders' equity as a snapshot in time.
- The income statement primarily focuses on a company’s revenues and expenses during a particular period. Once expenses are subtracted from revenues, the statement produces a company's profit figure called net income.
- The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations, fund its operating expenses, and fund investments.
- The statement of changes in equity records how profits are retained within a company for future growth or distributed to external parties.
Understanding Financial Statements
Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about the future direction of the company's stock price. One of the most important resources of reliable and audited financial data is the annual report , which contains the firm's financial statements.
The financial statements are used by investors, market analysts, and creditors to evaluate a company's financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows.
Not all financial statements are created equally. The rules used by U.S. companies is called Generally Accepted Accounting Principles, while the rules often used by international companies is International Financial Reporting Standards (IFRS). In addition, U.S. government agencies use a different set of financial reporting rules.
The balance sheet provides an overview of a company's assets, liabilities, and shareholders' equity as a snapshot in time. The date at the top of the balance sheet tells you when the snapshot was taken, which is generally the end of the reporting period. Below is a breakdown of the items in a balance sheet.
- Cash and cash equivalents are liquid assets, which may include Treasury bills and certificates of deposit.
- Accounts receivables are the amount of money owed to the company by its customers for the sale of its product and service.
- Inventory is the goods a company has on hand, which are intended to be sold as a course of business. Inventory may include finished goods, work in progress that is not yet finished, or raw materials on hand that have yet to be worked.
- Prepaid expenses are costs that have been paid in advance of when they are due. These expenses are recorded as an asset because their value of them has not yet been recognized; should the benefit not be recognized, the company would theoretically be due a refund.
- Property, plant, and equipment are capital assets owned by a company for its long-term benefit. This includes buildings used for manufacturing or heavy machinery used for processing raw materials.
- Investments are assets held for speculative future growth. These aren't used in operations; they are simply held for capital appreciation.
- Trademarks, patents, goodwill, and other intangible assets can't physically be touched but have future economic (and often long-term benefits) for the company.
- Accounts payable are the bills due as part of the normal course of operations of a business. This includes utility bills, rent invoices, and obligations to buy raw materials.
- Wages payable are payments due to staff for time worked.
- Notes payable are recorded debt instruments that record official debt agreements including the payment schedule and amount.
- Dividends payable are dividends that have been declared to be awarded to shareholders but have not yet been paid.
- Long-term debt can include a variety of obligations including sinking bond funds, mortgages, or other loans that are due in their entirety in longer than one year. Note that the short-term portion of this debt is recorded as a current liability.
- Shareholders' equity is a company's total assets minus its total liabilities. Shareholders' equity (also known as stockholders' equity ) represents the amount of money that would be returned to shareholders if all of the assets were liquidated and all of the company's debt was paid off.
- Retained earnings are part of shareholders' equity and are the amount of net earnings that were not paid to shareholders as dividends.
Example of a Balance Sheet
Below is a portion of ExxonMobil Corporation's (XOM) balance sheet for fiscal year 2021, reported as of Dec. 31, 2021.
- Total assets were $338.9 billion.
- Total liabilities were $163.2 billion.
- Total equity was $175.7 billion.
- Total liabilities and equity were $338.9 billion, which equals the total assets for the period.
Unlike the balance sheet, the income statement covers a range of time, which is a year for annual financial statements and a quarter for quarterly financial statements. The income statement provides an overview of revenues, expenses, net income, and earnings per share.
Operating revenue is the revenue earned by selling a company's products or services. The operating revenue for an auto manufacturer would be realized through the production and sale of autos. Operating revenue is generated from the core business activities of a company.
Non-operating revenue is the income earned from non-core business activities. These revenues fall outside the primary function of the business. Some non-operating revenue examples include:
- Interest earned on cash in the bank
- Rental income from a property
- Income from strategic partnerships like royalty payment receipts
- Income from an advertisement display located on the company's property
Other income is the revenue earned from other activities. Other income could include gains from the sale of long-term assets such as land, vehicles, or a subsidiary.
Primary expenses are incurred during the process of earning revenue from the primary activity of the business. Expenses include the cost of goods sold (COGS), selling, general and administrative expenses (SG&A), depreciation or amortization, and research and development (R&D).
Typical expenses include employee wages, sales commissions, and utilities such as electricity and transportation.
Expenses that are linked to secondary activities include interest paid on loans or debt. Losses from the sale of an asset are also recorded as expenses.
The main purpose of the income statement is to convey details of profitability and the financial results of business activities; however, it can be very effective in showing whether sales or revenue is increasing when compared over multiple periods.
Investors can also see how well a company's management is controlling expenses to determine whether a company's efforts in reducing the cost of sales might boost profits over time.
Example of an Income Statement
Below is a portion of ExxonMobil Corporation's income statement for fiscal year 2021, reported as of Dec. 31, 2021.
- Total revenue was $276.7 billion.
- Total costs were $254.4 billion.
- Net income or profit was $23 billion.
The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations, fund its operating expenses, and fund investments. The cash flow statement complements the balance sheet and income statement .
The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how money is being spent. The CFS also provides insight as to whether a company is on a solid financial footing.
There is no formula, per se, for calculating a cash flow statement. Instead, it contains three sections that report cash flow for the various activities for which a company uses its cash. Those three components of the CFS are listed below.
The operating activities on the CFS include any sources and uses of cash from running the business and selling its products or services. Cash from operations includes any changes made in cash accounts receivable, depreciation, inventory, and accounts payable . These transactions also include wages, income tax payments, interest payments, rent, and cash receipts from the sale of a product or service.
Investing activities include any sources and uses of cash from a company's investments in the long-term future of the company. A purchase or sale of an asset, loans made to vendors or received from customers, or any payments related to a merger or acquisition is included in this category.
Also, purchases of fixed assets such as property, plant, and equipment (PPE) are included in this section. In short, changes in equipment, assets, or investments relate to cash from investing.
Cash from financing activities includes the sources of cash from investors or banks, as well as the uses of cash paid to shareholders. Financing activities include debt issuance, equity issuance, stock repurchases, loans, dividends paid, and repayments of debt.
The cash flow statement reconciles the income statement with the balance sheet in three major business activities.
Example of a Cash Flow Statement
Below is a portion of ExxonMobil Corporation's cash flow statement for fiscal year 2021, reported as of Dec. 31, 2021. We can see the three areas of the cash flow statement and their results.
- Operating activities generated a positive cash flow of $48 billion.
- Investing activities generated negative cash flow or cash outflows of -$10.2 billion for the period. Additions to property, plant, and equipment made up the majority of cash outflows, which means the company invested in new fixed assets.
- Financing activities generated negative cash flow or cash outflows of -$35.4 billion for the period. Reductions in short-term debt and dividends paid out made up the majority of the cash outflows.
Statement of Changes in Shareholder Equity
The statement of changes in equity tracks total equity over time. This information ties back to a balance sheet for the same period; the ending balance on the change of equity statement is equal to the total equity reported on the balance sheet.
The formula for changes to shareholder equity will vary from company to company; in general, there are a couple of components:
- Beginning equity: this is the equity at the end of the last period that simply rolls to the start of the next period.
- (+) Net income: this is the amount of income the company earned in a given period. The proceeds from operations are automatically recognized as equity in the company, and this income is rolled into retained earnings at year-end.
- (-) Dividends: this is the amount of money that is paid out to shareholders from profits. Instead of keeping all of a company's profits, the company may choose to give some profits away to investors.
- (+/-) Other comprehensive income : this is the period-over-period change in other comprehensive income. Depending on transactions, this figure may be an addition or subtraction from equity.
In ExxonMobil's statement of changes in equity, the company also records activity for acquisitions, dispositions, amortization of stock-based awards, and other financial activity. This information is useful to analyze to determine how much money is being retained by the company for future growth as opposed to being distributed externally.
Statement of Comprehensive Income
An often less utilized financial statement, a statement of comprehensive income summarizes standard net income while also incorporating changes in other comprehensive income (OCI). Other comprehensive income includes all unrealized gains and losses that are not reported on the income statement. This financial statement shows a company's total change in income, even gains and losses that have yet to be recorded in accordance to accounting rules.
Examples of transactions that are reported on the statement of comprehensive income include:
- Net income (from the statement of income).
- Unrealized gains or losses from debt securities
- Unrealized gains or losses from derivative instruments
- Unrealized translation adjustments due to foreign currency
- Unrealized gains or losses from retirement programs
In the example below, ExxonMobil has over $2 billion of net unrecognized income. Instead of reporting just $23.5 billion of net income, ExxonMobil reports nearly $26 billion of total income when considering other comprehensive income.
Nonprofit organizations record financial transactions across a similar set of financial statements. However, due to the differences between a for-profit entity and a purely philanthropic entity, there are differences in the financial statements used. The standard set of financial statements used for a nonprofit entity includes:
- Statement of Financial Position: this is the equivalent of a for-profit entity's balance sheet. The largest difference is nonprofit entities do not have equity positions; any residual balances after all assets have been liquidated and liabilities have been satisfied are called "net assets"
- Statement of Activities: this is the equivalent of a for-profit entity's statement of income. This report tracks the changes in operation over time including the reporting of donations, grants, event revenue, and expenses to make everything happen.
- Statement of Functional Expenses: this is specific to non-profit entities. The statement of functional expenses reports expenses by entity function (often broken into administrative, program, or fundraising expenses). This information is distributed to the public to explain what proportion of company-wide expenses are related directly to the mission.
- Statement of Cash Flow: this is the equivalent of a for-profit entity's statement of cash flow. Though the accounts listed may vary due to the different nature of a nonprofit organization, the statement is still divided into operating, investing, and financing activities.
The purpose of an external auditor is to assess whether an entity's financial statements have been prepared in accordance with prevailing accounting rules and whether there are any material misstatements impacting the validity of results.
Limitations of Financial Statements
Although financial statements provide a wealth of information on a company, they do have limitations. The statements are open to interpretation, and as a result, investors often draw vastly different conclusions about a company's financial performance.
For example, some investors might want stock repurchases while other investors might prefer to see that money invested in long-term assets. A company's debt level might be fine for one investor while another might have concerns about the level of debt for the company.
When analyzing financial statements, it's important to compare multiple periods to determine if there are any trends as well as compare the company's results to its peers in the same industry.
Last, financial statements are only as reliable as the information being fed into the reports. Too often, it's been documented that fraudulent financial activity or poor control oversight have led to misstated financial statements intended to mislead users. Even when analyzing audited financial statements, there is a level of trust that users must place in the validity of the report and the figures being shown.
What Are the Main Types of Financial Statements?
The three main types of financial statements are the balance sheet, the income statement, and the cash flow statement. These three statements together show the assets and liabilities of a business, its revenues and costs, as well as its cash flows from operating, investing, and financing activities.
What Are the Main Items Shown in Financial Statements?
Depending on the corporation, the line items in a financial statement will differ; however, the most common line items are revenues, costs of goods sold, taxes, cash, marketable securities, inventory, short-term debt, long-term debt, accounts receivable, accounts payable, and cash flows from investing, operating, and financing activities.
What Are the Benefits of Financial Statements?
Financial statements show how a business operates. It provides insight into how much and how a business generates revenues, what the cost of doing business is, how efficiently it manages its cash, and what its assets and liabilities are. Financial statements provide all the detail on how well or poorly a company manages itself.
How Do You Read Financial Statements?
Financial statements are read in several different ways. First, financial statements can be compared to prior periods to better understand changes over time. For example, comparative income statements report what a company's income was last year and what a company's income is this year. Noting the year-over-year change informs users of the financial statements of a company's health.
Financial statements are also read by comparing the results to competitors or other industry participants. By comparing financial statements to other companies, analysts can get a better sense of which companies are performing the best and which are lagging behind the rest of the industry.
What Is GAAP?
Generally Accepted Accounting Principles (GAAP) are the set of rules by which United States companies must prepare their financial statements. It is the guidelines that explain how to record transactions, when to recognize revenue, and when expenses must be recognized. International companies may use a similar but different set of rules called International Financial Reporting Standards (IFRS).
Financial statements are the ticket to the external evaluation of a company's financial performance. The balance sheet reports a company's financial health through its liquidity and solvency, while the income statement reports a company's profitability. A statement of cash flow ties these two together by tracking sources and uses of cash. Together, financial statements communicate how a company is doing over time and against its competitors.
ExxonMobil. " 2021 Annual Report ," Page 72.
ExxonMobil. " 2021 Annual Report ," Page 70.
ExxonMobil. " 2021 Annual Report ," Page 73.
- Valuing a Company: Business Valuation Defined With 6 Methods 1 of 37
- What Is Valuation? 2 of 37
- Valuation Analysis: Meaning, Examples and Use Cases 3 of 37
- Financial Statements: List of Types and How to Read Them 4 of 37
- Balance Sheet: Explanation, Components, and Examples 5 of 37
- Cash Flow Statement: How to Read and Understand It 6 of 37
- 6 Basic Financial Ratios and What They Reveal 7 of 37
- 5 Must-Have Metrics for Value Investors 8 of 37
- Earnings Per Share (EPS): What It Means and How to Calculate It 9 of 37
- P/E Ratio Definition: Price-to-Earnings Ratio Formula and Examples 10 of 37
- Price-to-Book (PB) Ratio: Meaning, Formula, and Example 11 of 37
- Price/Earnings-to-Growth (PEG) Ratio: What It Is and the Formula 12 of 37
- Fundamental Analysis: Principles, Types, and How to Use It 13 of 37
- Absolute Value: Definition, Calculation Methods, Example 14 of 37
- Relative Valuation Model: Definition, Steps, and Types of Models 15 of 37
- Intrinsic Value of a Stock: What It Is, Formulas to Calculate It 16 of 37
- Intrinsic Value vs. Current Market Value: What's the Difference? 17 of 37
- The Comparables Approach to Equity Valuation 18 of 37
- The 4 Basic Elements of Stock Value 19 of 37
- How to Become Your Own Stock Analyst 20 of 37
- Due Diligence in 10 Easy Steps 21 of 37
- Determining the Value of a Preferred Stock 22 of 37
- Qualitative Analysis 23 of 37
- How to Choose the Best Stock Valuation Method 24 of 37
- Bottom-Up Investing: Definition, Example, Vs. Top-Down 25 of 37
- Financial Ratio Analysis: Definition, Types, Examples, and How to Use 26 of 37
- What Book Value Means to Investors 27 of 37
- Liquidation Value: Definition, What's Excluded, and Example 28 of 37
- Market Capitalization: How Is It Calculated and What Does It Tell Investors? 29 of 37
- Discounted Cash Flow (DCF) Explained With Formula and Examples 30 of 37
- Enterprise Value (EV) Formula and What It Means 31 of 37
- How to Use Enterprise Value to Compare Companies 32 of 37
- How to Analyze Corporate Profit Margins 33 of 37
- Return on Equity (ROE) Calculation and What It Means 34 of 37
- Decoding DuPont Analysis 35 of 37
- How to Value Private Companies 36 of 37
- Valuing Startup Ventures 37 of 37
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What Is Financial Reporting & Why Is It Important?
Financial reporting is the accounting process for communicating financial information. All companies do some form of external or internal financial reporting — or both. External financial reports must conform to accounting and reporting standards, and internal reports should do so, too, though the two types of reports can look different because they serve different purposes:
- External reporting is used by company outsiders, like regulatory agencies, tax authorities, investors, lenders and trade partners, so it has more rigid requirements.
- Internal reporting is used by a company's senior management team to inform decision-making, so it can be more tailored to their specific informational needs and the company's business objectives.
Whether external or internal, the challenge for most companies is creating accurate, timely financial reporting in an efficient way. Here's what's involved and how to make it better.
What Is Financial Reporting?
Financial reporting — the communication of financial information to external and internal stakeholders — is most often achieved by the "core" financial statements: balance sheet, income statement and statement of cash flows. But it can also come in many other forms, depending on the information needs of the reader.
For example, public companies file quarterly 10-Q and annual 10-K statements with the Securities and Exchange Commission (SEC) containing extensive notes to the financial statements, supplementary schedules and the management's discussion and analysis (MD&A). For internal stakeholders, financial reporting can comprise any financial reports that management wishes to generate, such as detailed sales reports, trends and key performance indicators (KPIs).
- Financial reporting is an accounting process that communicates financial data to external and internal stakeholders, such as shareholders, lenders and senior company management.
- External financial reporting requirements are different for public and private companies, but the reports are universally required by law for tax reporting.
- The financial statements, SEC forms, annual report and MD&A are some items included in financial reporting packages.
- Integrated financial reporting software helps make financial reporting more accurate and timelier through automated processes, which have the added benefit of allowing resources to be redeployed to analysis and action.
Financial Reporting Explained
Companies of all sizes engage in some form of financial reporting, whether for compliance with outside regulatory agencies or industry custom, or for internal management decision-making. Large public companies must comply with stringent financial reporting obligations issued by the SEC; private firms might have financial reporting obligations to lenders or owners; and even small firms must do some degree of financial reporting when they prepare their tax filings.
Financial reporting is a continual process, with periodic deliverables throughout the fiscal year. Annual financial reporting happens at the end of a company's fiscal year, while interim financial reporting covers periods less than one year, typically months or quarters.
Why Is Financial Reporting Important?
Financial reporting — and its components — tells a story about a company's financial health. An important underpinning is that the information in financial reporting packages must conform to U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS); this conformity provides reliability and consistency. More specifically, financial reporting is vital for the following four purposes:
A company's financial story is especially important when the company is looking to raise capital , whether through public markets, private investments or loans. Outside parties use financial reports to assess creditworthiness and the strength of the company's operations.
While most financial reporting is retrospective, investors, partners and even customers/suppliers can also use it to form predictive opinions regarding future performance and viability. For example, suppliers might use a company's financial reporting to determine whether to start doing business together, based on the trajectory of the company's sales.
Financial reporting is also indispensable to internal management, serving as a foundation for analyzing operations, measuring KPIs or even calculating compensation for employees. For example, analyzing a dashboard of accounts receivable KPIs, such as day's sales outstanding, can help senior management gauge the effectiveness of the billing and collection staff, as well as predict cash flow.
Compliance and law.
Financial reporting is also important because it satisfies compliance requirements and laws. Most companies have at least one stakeholder whose continuing involvement requires periodic financial reporting. For public companies, that could be the SEC. Private companies might have a loan that requires periodic reporting of certain debt covenants. Beyond that, financial reporting is legally required by the Internal Revenue Service (IRS) — every US business's "universal stakeholder."
What Is the Purpose of Financial Reporting?
Financial reporting provides insight and transparency into a company's financial position and its operations. It's meant to give stakeholders in the company the right information, in the right amount of detail, to make better-informed decisions. This is true, whether for an external investor, a taxing agency or internal management. Good financial reporting gets different parties on the same page with a single version of the truth, and gives credibility to the company and its management. On the other hand, fraudulent or inaccurate financial reporting can torpedo a company's reputation and value.
What Is Included in Financial Reporting?
A lot of effort goes into financial reporting, derived from several different areas in a company. Financial controllers and their accounting staff are responsible for the financial reporting process in most midsize companies. In larger, public companies, the CFO and CEO are required to certify the reported information, as are external auditors, while the investor relations department handles distribution of financial reports to the public via press releases, websites, earnings calls and other external communication channels. In smaller companies, the lead staff accountant, or even the business owner, controls most of the financial reporting function, sometimes with the help of external accountants. Fortunately, requirements for small businesses are usually proportionately scaled down.
Regardless of company size, items typically included in external financial reporting are:
- Financial statements
- Notes to the financial statements
- Annual report
- SEC filings, including the 10-K and 10-Q, along with many potential others, like a prospectus, proxy statement or 8-K (for unusual events), among others.
A key point for financial reporting is timeliness. Even the most accurate and complete financial report has less value if it is out of date.
Key Types of Financial Statements and Reporting
Financial statements — standardized summaries of a company's financial profile — are the primary component of financial reporting. Each financial statement has its own focus, so it is most useful for conveying a company's story when grouped together with other statements typically included in a reporting package, such as the quarterly 10-Qs and annual 10-Ks of US public companies. The detailed accounting data underlying financial statements can be sliced and diced for internal reporting in dashboards when supported by automated accounting systems and analysis tools. Key types of financial statements and dashboards used for financial reporting are:
The income statement reports revenue, expenses and net income/(loss) for a fiscal period. It's often considered the most important of the three basic financial statements because it focuses on operating results. It's commonly presented in comparison to prior fiscal periods.
A balance sheet shows a company's financial position as of a certain point in time. It lists a company's assets, liabilities and equity in accordance with the accounting equation: Assets = Liabilities + Equity. The balance sheet is used to gauge a company's net worth, its overall financial strength and its ability to fund future growth.
Cash flow statement:
The cash flow statement presents a summary of how a company received and disbursed cash and cash equivalents over a stated period. It classifies sources and uses of cash into operating activity, investing activity and financing activity; strips away noncash activity (e.g., depreciation) from net income; and reveals the amount and source of a company's liquidity. By analyzing the cash flow statement, stakeholders can draw their own conclusions about a company's ability to meet its cash needs.
Used for internal reporting, a financial dashboard is an automated, graphical representation of a company's underlying accounting and operational data. Different dashboards can be configured to show any KPI or analysis that is appropriate for a particular manager. Real-time dashboards provide the most useful internal financial reporting.
This is an important example of a role-based financial dashboard and is one that summarizes the key data required by the most senior financial officer. Typical reporting on a CFO dashboard might be working capital KPIs, accounts receivable and accounts payable turnover, credit utilization, payroll data and budget trending, as well as summary financial statements.
Benefits of Financial Reporting
A financial reporting package serves many purposes beyond satisfying compliance and legal requirements. Key benefits of financial reporting include:
Internal analysis of a company's financial reports can help the company spot trends in the business so that it can exploit emerging opportunities and mitigate risk from potential challenges.
Managing cash flow:
Financial reporting helps a company stay on top of its cash balances and monitor cash inflows and disbursements , all of which is vital to businesses of all sizes and industries.
Enhancing working capital management:
Real-time financial reporting helps senior management calculate and balance adequate current assets in order to meet current liabilities without creating an underutilized surplus. In a similar fashion, it helps manage debt, especially debt related to revolving credit lines and other short-term credit facilities, like credit cards.
Kickstarting budgets and forecasts:
Financial reporting, especially the income statement, provides a solid foundation when creating future-looking analyses, as might be required for budgets, forecasts and pro-forma scenarios.
You can't manage what you don't measure. Internal financial reporting is a tool for helping a business become more effective and efficient, through KPIs and other regular reports.
Improving business partner relationships:
A company enhances its relationships with its business partners, suppliers, customers, creditors and investors by being a good company to do business with. Financial reporting can help managers make more timely payments to suppliers, set competitive prices for customers, establish creditworthiness with creditors and conduct meaningful communication with investors.
Financial Reporting Requirements
Financial reporting requirements are constantly changing. The various standard setters, like the Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB) and Government Accounting Standards Board (GASB), are always tweaking the accounting standards to make financial reporting more accurate and useful. The SEC and the IRS update their rules in line with those tweaks, as well as in response to changes in the national economic climate and in government laws and programs.
Small, privately owned companies have fewer external financial reporting requirements than public companies. While the former are not required to release financial statements or other financial data to the public, they are required to file tax estimates and annual tax returns with the IRS. Additionally, lenders usually require various regular financial reports, such as specific debt covenant calculations. For those small companies interested in raising capital through smaller registered offerings, there is a dedicated SEC Office of Small Business Policy that provides guidance on financial reporting requirements.
Larger privately held companies sometimes voluntarily release financial reports to the public as a form of marketing. By giving the public some generalized information, they build interest among potential partners and acquisition targets, trading partners and the media. Their financial reporting usually is similar to that of large public companies, aiming both to satisfy their nonpublic stakeholders and to meet internal management purposes.
Public companies have the most stringent financial reporting requirements, which are primarily dictated by the SEC. The SEC financial reporting manual is hundreds of pages long, not including its guidance publications, called Staff Accounting Bulletins, which help CFOs and controllers interpret the rules. Most common SEC financial reporting requirements are the quarterly 10-Q, the annual 10-K, the 8-K for reporting significant events and Schedule 13D, which is filed when any person or entity attains 5% ownership of a single class of stock.
10 Use Cases for Financial Reporting
When a company tells its story through financial reporting, different stakeholders are listening for different reasons. Broad reasons are to track and analyze a company's current health — hence, the ever-present primary financial reporting use case of complying with regulatory, legal and tax requirements. But there are many other specific external and internal use cases for financial reports. Here's a list of 10 more:
By potential investors who are considering buying stock in a company.
For family, friends and private investors who are contemplating making an equity investment in a company., for banks' analyses of credit applications for loans, lines of credit and letters of credit for overseas activity., by credit card issuers evaluating a corporate or business credit card application., for potential merger or acquisition activity., for bargaining with labor unions., for senior management, to analyze profitability at all levels: consolidated, by subsidiary, by location and by product., to identify, analyze and manage cash flow for mature companies or assess burn rate for startup companies., to build budgets, projections and forecasts., to support decisions regarding business expansion or reduction., financial reporting examples.
Private companies disclose limited financial information on their corporate website, usually in the form of press releases. However, there are thousands of publicly available examples of financial reports from public companies. Their reports are posted on their websites and in press releases, and are included in the SEC's publicly accessible EDGAR online database.
Here are the main examples:
Form 10-Q (quarterly earnings release):
At the end of each quarter, public companies file a form 10-Q with the SEC, a key financial report used by investors and the public markets. The 10-Q includes unaudited financial statements and summary commentary from company management, as well as supplementary disclosures and schedules for the just-ended quarter and for the fiscal year to date. In many ways, it is like a “mini” annual 10-K. These are important financial reports because they provide the public with three periodic updates throughout the year on how a company is doing, rather than having to wait 12 months for an annual 10-K.
They can have a significant impact on a public company's stock price, since they may signal significant trends, for good or bad. For example, a recent 10-Q from a major pet e-tailer attributed its 27% increase in net sales (compared to the same quarter in the prior year) to an increase in new customers, combined with a rise in how much continuing customers were buying. However, the e-tailer also discussed how supply chain challenges related to the COVID-19 pandemic might hamper future increases. The company's stock price dropped 9% the day after the 10-Q filing.
Notes to the financial statements:
The notes and supplemental schedules found in 10-K filings can be as informative as the financial statements themselves. For example, one interactive entertainment retailer commonly located in malls across the US discussed in the notes to its most recent 10-K the impact that recent changes in lease accounting standards (ASC 842) had on its financial results and its ability to renegotiate many of its 300+ leases.
Form 10-K, Part 1 — aka "The Business":
Another interesting part of 10-K financial reporting can be found in Part 1, which is a qualitative discussion of a company's business, including strengths, weaknesses and other important matters that provide context for the quantitative data in the company's financial story. For example, an interesting discussion of the impact that the COVID-19 pandemic had on one large fitness chain's operations can be found in Part 1 of its most recent 10-K.
Annual reports are considered more "friendly" than 10-Ks because they contain charts, illustrations, photos and a letter from the CEO. Historically printed on glossy paper, annual reports are geared toward shareholders and contain much of the same basic financial data as financial statements. Additionally, they are often used as marketing material for employees, customers and the company's community of business partners. There are several searchable, commercial online repositories to help find annual reports, but they can also be found directly on most companies' websites. Digital annual reports are designed to reflect a company's brand and be interactive, combining financial data with playful illustrations, video and audio. For example, an athletic sports brand used chart generators and animation in its online annual report, earning it awards.
Management's discussion and analysis (MD&A):
The MD&A gives company management a platform to tell its story in an easy to understand, yet data-heavy, narrative. It's found in annual reports and 10-Ks, and discusses a company's performance over the past three fiscal years, with an emphasis on the most recent year's sales and income compared to past years. The MD&A is also an opportunity to discuss unusual events, trends and outlook. For example, a large technology provider discussed the operational results of its various cloud, licensing, hardware and services lines of business, and the reasons it anticipates future growth, in a recent MD&A.
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Simply reporting correct numbers can be a challenge for many companies — and going beyond that to create truly useful financial reports can suck up far more resources. Meeting rigid external deadlines and ensuring timely reporting adds to the task. Using robust automation is the most efficient way to get the financial reporting process completed successfully in every fiscal period, with resources left over to analyze and act on the data provided by internal financial reporting. A solution like NetSuite Financial Reporting integrates a company's financial and operational data to provide templated and customized financial reporting that's updated in real time and securely available from anywhere with internet connectivity.
Financial reporting is the way businesses communicate financial data to external and internal stakeholders. External stakeholders — like regulatory agencies, current and potential shareholders and investors, and lenders — use financial reports to draw conclusions about a company's current and future financial health. Internal financial reporting is less rigid and used by internal management to inform decision-making. Rules and guidelines from GAAP, IASB, SEC and others provide a standard framework for financial reporting. Accounting departments can provide the most accurate and timely financial reporting by using integrated financial reporting software.
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Financial Reporting FAQs
What are the four basic financial reports.
There are three basic financial statements: the income statement, balance sheet and statement of cash flows. When a fourth is referenced, it's usually the statement of retained earnings.
How is financial reporting done?
Financial reporting is typically the last step in the accounting close, although automated software can provide real-time access to the data. It is done in compliance with GAAP, IFRS and SEC rules. Internal financial reporting is done by using financial dashboards, scheduled reports and ad hoc reports.
What Are the Risks of Inaccurate Financial Reporting?
In an ideal world, every company’s financial reporting would always be 100% error-free. Financial statements contain vital information about a company’s health, and internal and external stakeholders need to be able to…
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11 Examples Of Financial Reports You Can Use For Daily, Weekly & Monthly Reports
Table of Contents
1) What Is A Financial Report?
2) Types Of Financial Reports
3) Annual Financial Report Example
4) Monthly Financial Reports Examples
5) Weekly Financial Report Templates
6) Daily Financial Report Examples
7) Why Do You Need Financial Reports?
8) Challenges Of Financial Reports
9) How To Make A Financial Report?
Regardless of your sector or industry, it’s likely that your finances department is the beating heart of your entire operation. Without financial fluency, it’s difficult for an organization to thrive, which means that keeping your monetary affairs in order is essential.
As a business, you need the reliability of frequent business financial reports to gain a better grasp of the status of your finances, both current and future. In addition to empowering you to take a proactive approach concerning the management of your company’s economy, these tools help assist in increasing long-term profitability through short-term company financial statements.
A robust finance report communicates crucial accounting information that covers a specified period, such as daily, weekly, and monthly. These are powerful tools that you can apply to increase internal business performance. A data-driven finance report is also an effective means of remaining updated with any significant progress or changes in the status of your finances and helps you measure your results, cash flow, and overall profitability.
Here, we will look at these kinds of tools in greater detail, delving into daily, weekly, and annual reports but focusing mainly on monthly financial reports and examples you can use for creating your own, which we will present and explain later in the article alongside their relevance in today’s fast-paced, hyper-connected business world.
What Is A Financial Report?
A financial report or financial statement is a management tool used to communicate the performance of key financial activities efficiently. With the help of interactive KPIs, businesses can ensure steady growth and revenue while staying compliant with law and tax regulations.
As you can see in the example above, created with a professional financial business intelligence solution, a modern finance report can have all the relevant information right at your fingertips, offering the ability to visualize as well as analyze key data; they assist in uncovering fresh insights, spotting key financial trends, identifying strengths as well as weaknesses, and improving communication throughout the organization. We will explore even more examples of monthly statements later in the article.
We live in a data-driven age, and the ability to use financial insights and metrics to your advantage will set you apart from the pack. Online reporting tools to do that exist for that very purpose. To gain a panoramic view of your business’s financial activities, working with an annual, monthly, weekly, and daily financial report template will give you a well-rounded and comprehensive overview of every key area based on your specific aims, goals, and objectives.
Your organization needs these tools to help support certain objectives and enable you to provide useful information to investors, decision-makers, and creditors, especially if you work as a financial agency and need to create an interactive client dashboard . But not only, as it can also support your business in determining the following:
- If you can effectively generate cash and how that cash is used.
- To reveal specific business transaction details.
- To follow the results of your finances so you can identify potential issues that are impacting your profitability.
- Develop financial ratios that show the position of your business.
- Evaluate if your company can pay off all of your debts.
Daily reports, however, have a limited impact, as most of the financial KPIs that are used need mid-to-long-term monitoring and do not provide accurate information if analyzed only on a daily basis.
This is why we still mention them and provide examples of what can be tracked and analyzed every day, but for a long-term view, you should take a look at our annual, weekly, and monthly reports. The monthly ones are on top, illustrated with beautiful data visualizations that provide a better understanding of the metrics tracked.
Equipped with financial analytics software , you can easily produce these daily, weekly, monthly, and annual reports. They will provide your company with the insights it needs to remain profitable, meet objectives, evaluate your decision-making processes, and keep everyone in the value chain on track.
Your Chance: Want to test financial reporting software completely free? We offer a 14-day free trial. Benefit from great financial reports today!
Types Of Financial Reports
As stated above, finance statements are fundamental tools for businesses not only to track their performance and report to investors but also to stay compliant with law regulations that obligate them to respond to certain guidelines. That said, there are three major types, and we will cover them in detail below!
A balance sheet is a statement that provides detailed information about a company’s assets, liabilities, and equity. Or in other words, what a company owns, owes, and is invested by shareholders. Balance sheets should portray the bigger picture of a business's financial health during a particular date. There is no mandatory frequency to generate balance sheets; some organizations prepare monthly statements, while others can do quarterly or annual ones. Let’s see each of the elements in more detail below.
- Assets : The items your company owns that can provide future economic benefits. This can be from cash to furniture or equipment.
- Liabilities : It is basically what your company owes to others. They can be divided into long-term liabilities, such as the lease of your office building or a bank loan, or short-term liabilities, which can be your credit card debt or wages to employees.
- Equity : It represents the shareholder’s stake in the company . To calculate the shareholders’ equity, you need to subtract the total liabilities from the total assets. This calculation is based on the general accounting equation formula: Assets = Liabilities + Shareholders' Equity. Equity is used in many different ratios, such as ROA and ROE.
An important note regarding this type of statement is that it should always be balanced, hence the name. Your total assets should always equal the total liabilities and shareholder’s equity. If this is not the case, then there must be something wrong, and it needs to be looked into. Another consideration when it comes to balance sheets is always to compare them to other similar businesses, as they will vary depending on the industry.
As its name suggests, the income statement portrays the revenue generated from sales as well as all the operating expenses involved in generating that income. Essentially, how much you made and how much you spent. While a balance sheet provides a snapshot of a business's monetary health at a specific point in time, an income statement shows the profitability of a business over an accounting period (month, quarter, or year).
Also known as profit and loss, this is a fundamental document for any business as it not only tracks performance but it needs to be presented to the fiscal authorities to ensure compliance with law regulations. The income statement focuses on 4 key elements: revenue, expenses, gains, and losses.
- Revenues : The revenue can be divided into operating and non-operating. On one hand, the operating one includes all income related to primary activities such as selling a product or service. On the other hand, the non-operating one is related to non-core business activities such as income from interest earned on capital lying in the bank or rental income from the business property.
- Gains : Essentially, gains measure the money made from other activities that are non-business related and that are a one-time-only thing. For example: selling an old machine or unused land.
- Expenses : All costs related to core operations. Just like revenue, expenses can be divided into primary and secondary. Primary expenses are all the ones linked to the operating revenue, while secondary ones are linked to non-operating revenue.
- Losses : All expenses that cost the company to lose assets. They are unusual one-time costs, such as lawsuit expenses.
The bottom line of the income statement is the Net Income which is basically the profit of the observed period. The net income is calculated with the following formula: Net Income= (Revenue + Gains) - (Expenses + Losses)
Cash Flow Statement
Last but not least, the cash flow statement (CFS) portrays how much money entered and left the business during a particular time period. It basically measures how well the company manages to generate cash to pay debt obligations and cover operating expenses. While an income statement can tell you whether a company made a profit, the cash flow can tell you if it made cash. The CFS is a fundamental document for investors as it helps them understand the liquidity of a company and make informed investment decisions.
Usually, CFS is divided into three main sections: operating activities, investing activities, and financing activities. Let’s see them in more detail.
- Operating activities : This refers to any sources or uses of cash from regular business activities such as sales of goods and services, interest payments, salary for employees, and tax payments, just to name a few.
- Investing activities: This includes any sources or uses of cash from investments which can include purchases or sales of assets, loans made to vendors, and others.
- Financing activities: This includes sources or uses of cash from investors and banks, such as dividends, payments for stock repurchases, and loans.
Now that we have a better understanding of the definition and types, we are going to take a closer look at financial statements examples of daily, weekly, monthly, and annual reports and their associated KPIs. These examples will help your organization tick over the right way . Let's get started.
Annual Financial Report Example
We are hitting things off with the annual financial report. As its name suggests, these statements monitor the performance of a business for the duration of a year. They can include anything from a balance sheet, income statement, and CFS, as well as predictions for the coming year. Now we will look at an example of an interactive annual dashboard in the shape of an income statement comparing the actual vs. forecasted performance of an organization.
**click to enlarge**
Financial forecasting is the process of using predictive analytics technologies to generate accurate predictions about future performance. This is done by analyzing a mix of historical and current data and finding patterns that can help organizations make better decisions.
Our template above, generated with a modern dashboard maker , does just that. It starts by providing detailed information about the three most important metrics in an income statement: revenue, costs, and net profit. Each of them is displayed on a gauge chart with the actual value compared to a forecasted value, paired with the absolute and percentage difference between the two values. This way, users can quickly identify when something is lacking in performance compared to what was expected from it.
The value of this high-level tool is the fact that it provides three months forecast based on the past 12 months performance. This allows managers to efficiently plan their strategies based on the expected costs and revenues. The dashboard also provides a breakdown of each of these metrics to analyze each element in detail. For instance, by looking at the past 6 months of the revenue breakdown chart, we can see that this business has not been reaching the forecasted amount, which means something might be going on that needs to be looked at. On the other hand, we can see that costs for marketing are slightly higher than expected, which can also be something to look into and see if these costs are justified.
Monthly Financial Reports Examples & Templates
Monthly financial reports are a management way of obtaining a concise overview of the previous month’s status to have up-to-date reporting of the cash management, profit, and loss statements while evaluating future plans and decisions moving forward.
These financial reporting examples offer a more panoramic view of an organization’s economic affairs, serving up elements of information covered in our daily and weekly explanations. By offering the ability to drill down into metrics over a four-week period, the data here is largely focused on creating bigger, more long-term changes, strategies, and initiatives.
These powerful documents offer detailed visual insights into the following areas:
- Cash management: A comprehensive overview of your organization’s liquidity and existing cash flow situation.
- Profit and loss: A critical glimpse into your company’s income statement and profits in a number of critical areas of the business.
- The bigger picture: A business financial report format offers a full overview of the company’s core financing activities over a monthly period, providing data geared towards developing sustainable strategies and improvements that will foster growth and increased profitability.
Coupled with the insights delivered by daily and weekly reports, monthly ones in the form of online dashboards are pivotal to not only gaining an edge on your competitors but also getting a predictive vision that will ensure you meet – and even exceed – your financial targets indefinitely. As a result, your overall efficiency will become flawless, and you’re likely to enjoy healthy growth in your year-on-year profits.
There is a wealth of KPIs to consider when looking at a monthly financial report sample. The best way to explain them in a practical context is by getting visual.
To help you understand how you can benefit from all of this, here are 5 monthly report examples, complete with explanatory insight and a deeper insight into their respective KPIs.
These interactive financial reports examples demonstrate the detail and insight you can gain from your online data analysis if you use it in the right way.
a) Cash Management Financial Report Template And KPIs
Our first example of a financial report provides you with a quick overview of your liquidity and current cash flow situation. Good management of cash flow is fundamental for success since a healthy cash flow means that the company has enough money to pay salaries and debts and invest in growth opportunities. However, bad management can lead to the end of a business since no cash means no operations. This example is critical to keeping your finances flowing across the organization and predicting future outcomes that will help you to stay always ahead of your finances.
The first portion of this dashboard examines the current ratio, which is simply the ratio between your current assets and liabilities. This metric demonstrates the flexibility your company has in immediately using the money for acquisitions or to pay off debts. A really healthy current ratio would be about 2 to ensure your company will be able to pay current liabilities at any time and still have a buffer. Alongside this metric is the quick ratio, which is similar to the current ratio, except it takes into account only the near-cash assets, meaning all assets that you can convert into cash quickly, such as equipment or furniture. This means your quick ratio will always be lower than your current ratio. By monitoring these metrics, you can understand at a quick glance if your business is liquid or not.
Next, the cash management dashboard goes more in detail into the situation of a business with two financial graphs visualizing the current accounts payable and receivable for a year, this way you can stay on top of your expenditures and money to be collected and avoid having future issues that will affect your liquidity.
Current ratio: Core indication of a business’s short-term financial health, as well as indicating if you’re promptly collecting Accounts Due.
- This metric is measured by dividing debt and accounts payable by cash inventory and accounts receivables.
Quick ratio: As mentioned above, this metric only takes into account the short-term assets that you can turn into money within 90 days, like your accounts receivable. The higher the ratio, the healthier the liquidity of your business. Your goal should always be to keep your quick ratio at a minimum of 1,0.
Accounts payable turnover ratio: This shows how quickly your organization pays off suppliers and other bills. It also shows the number of times your company can pay off the average accounts payable balance during a certain time period.
- For example, if your company purchases 10 million goods in a year and holds an average account payable of 2 million, the ratio is 5.
- A higher ratio shows suppliers and creditors that your company is on top of paying its bills.
b) Profit And Loss Financial Reports Examples And KPIs
Moving on with our list of financial reporting templates, the P&L dashboard gives a clear overview of the income statement, from the income earned to the final net profit; the whole is enhanced by relevant performance ratios.
An income statement, also known as a P&L, is one of the most powerful examples as it gives you a detailed snapshot of your company's financial performance and tells you how profitable your business was in a specific period of time.
The dashboard above is a perfect example of a financial statement for P&L. First, we see the income statement that starts by calculating the gross profit, which is obtained by subtracting your total revenue from your COGS. Next, we have a list of operating expenses (OPEX) that include sales, marketing, and other general administration costs. The total OPEX is then subtracted from the gross profit to reach the operating profit (EBIT). Finally, the total amount of interest and taxes are subtracted from the EBIT, resulting in the final net profit of the business. By doing these simple calculations, you can quickly see how profitable your company is and if your costs and income are being managed properly.
Additionally, the dashboard provides a glance at performance percentages of the main metrics of the income statement: gross profit, OPEX, EBIT, and net profit. This can be further utilized to find month-to-month trends in your expenses and prepare ahead of time for months in which your expenses will be higher.
It is important to consider that an income statement will not tell you more detailed information about your finances, such as how much money your company has in total or how much debt you have. For this purpose, there is another type of document called a balance sheet, and we will see it in more detail in our next financial statement example.
Operating profit margin (EBIT): It allows your business to monitor how much profit you are generating for each dollar of income. This metric is also referred to as “EBIT” for “earnings before interest and tax.”
- This metric measures how profitable your business model is and shows what’s leftover of your revenue after paying for operational costs.
- It doesn’t include revenue earned from investments or the effects of taxes.
Operating expense ratio: This monthly example indicates the operational efficiency of your business through the comparison of operating expenses and your total revenue.
- Essentially the lower your operating expenses, the more profitable your organization is.
- These KPIs are particularly helpful in benchmarking your company against other businesses.
Net profit margin: Measures your business’s profit minus operating expenses, interest, and taxes divided by total revenue.
- It’s one of the most closely monitored financial KPIs. The higher the net profit margin, the better.
COGS: The Cost of Good Sold is the total amount of money it costs you to produce your product or service. If your COGS and your revenues are too close, that means you are not making a lot of gains on each sale.
- Separating COGS from operating expenses is a fundamental step, as it will tell you if you are overspending your revenues in operational processes.
c) Financial Performance Report Template And KPIs
This particular financial statement template provides you with an overview of how efficiently you are spending your capital while providing a snapshot of the main metrics on your balance sheet.
Just like the income statement, a balance sheet is another powerful tool for understanding the performance of your business. As we see in the dashboard below, a balance sheet is divided into three main areas: assets, liabilities, and equity.
Alongside the balance sheet, the dashboard displays four other important metrics: the ROA, WCR, ROE, and DER. These four KPIs give you an immediate picture of trends in how your company’s assets are being managed. Good management of your assets and healthy equity will bring new investors to your business and will prevent you from facing disasters for unexpected losses, or bankruptcy.
Return on assets (ROA): This shows how profitable your businesses are compared to your total assets. Assets include both debt and equity.
- This is a critical metric to any potential investors because it shows them how efficiently management is using assets to generate earnings.
Return on equity (ROE): Calculates the profit your company generates for your shareholders. It is used to compare profitability amongst businesses in the same industry.
- This is measured by dividing your business’s net income by your shareholder's equity.
Debt equity ratio (DEB): This metric measures how much debt you are using to finance your assets and operations in comparison to the equity available. It is obtained by dividing the total liabilities by the stakeholder’s equity.
d) Financial KPI Dashboard And KPIs
This financial report format created with a professional dashboard designer offers a broad overview of your business’s most critical economic activities, operating with KPIs that are developed specifically to answer vital questions on areas such as liquidity, invoicing, budgeting, and general accounting stability. A template that you can apply to almost every business across industries, this incredibly insightful tool is pivotal to maintaining a healthy, continually evolving financial profile. Let’s look at the KPIs linked to this most valuable example.
Working capital: A key performance indicator focused on financial stability, this metric will help you monitor your performance based on your company's assets and liabilities.
- In the context of this financial report format, working capital is vital as it will help you accurately gauge your business’s operational efficiency and short-term health.
Quick ratio/acid test: A KPI that offers instant insights as well as results, this metric serves up critical information concerning liquidity.
- The quick ratio/acid test is worth tracking – by measuring these particular metrics, you’ll be able to understand whether your company is scalable and, if not – which measures you need to take to foster growth.
Cash conversion cycle: Your cash conversion cycle (CCC) is a critical metric for any organization as it drills down into key areas of your company’s operational and managerial processes.
- Tracking your CCC with visual BI reporting tools is incredibly useful as it provides a quantifiable means of knowing the length of time it takes for your business to convert its inventory investments, in addition to other resources, into cash flows from sales.
- A steady, consistent CCC is generally a good sign, and if you spot noticeable fluctuations, you should conduct further analysis to identify the root of the issue.
Vendor payment error rate: Every business – including yours – works with third-party vendors or partners, and managing these relationships as efficiently as possible is critical to any organization’s ongoing financial health. That’s where the vendor payment error rate KPI comes in.
- By gaining an insight into potential errors or efficiencies relating to the payment of your vendors, you’ll be able to improve financial flow and efficiency while nurturing your most valuable professional relationships.
- If your vendor error rate is high, you will know that procurement inefficiencies exist, and you’ll be able to take appropriate action to improve your processes and avoid potential disputes.
Budget variance: Budgeting is one of the cornerstones of corporate financial health. This powerful KPI from this most critical financial report sample serves to express the difference between budgeted and genuine figures for a particular accounting category.
- Offering a quick-glance visualization of whether particular budgets are on track in specific areas and departments, this KPI allows you to get a grasp of variances between proposed and actual figures while obtaining the information required to make vital changes in the appropriate areas.
- Keeping your budget expectations and proposals as accurate and realistic as possible is critical to your company’s growth, which makes this metric an essential part of any business’s reporting toolkit.
e) Financial Statement Example For CFOs
Next, we look into a financial performance report focused on data relevant for CFOs that need to grasp high-level metrics such as revenue, gross profit, operating expenses, net income, berry ratio, EVA, payroll headcount ratio, and, finally, to build a strong team and customer base, satisfaction levels of each. This financial management report example will not only serve as a roadmap for depicting the monetary health of a company but also focus on team management and customer satisfaction, which are not traditional finance-related metrics but are important in this case for every modern CFO. This example shows the YTD until March, but it can also be used as one of our monthly financial statements examples. We will explain the KPIs in more detail below:
Berry ratio: This ratio is defined between gross profit and operating expenses (costs). This financial indicator is critical when showing if the company is generating a healthy amount of profit or losing money.
- When calculating the berry ratio, usually external income and interest aren't included, but depreciation and amortization could be, depending on the particularities of your strategy.
- An indicator over 1 means that the company is making a profit above all expenses, while a coefficient below 1 will indicate that the company is losing money.
Economic value added (EVA): Referred to as the economic profit of a company, EVA is a critical element to include in any finance report template as it will show the surplus profit over the WACC (weighted average cost of capital) demanded by the capital market.
- By gaining insights into the potential surplus and how profitable a company's projects are, the management performance can be reflected better. Moreover, it will reflect the idea that the business is profitable only when it starts to create wealth for its shareholders.
- Succinctly speaking, the financial statement should include EVA as it will show how much and from where a company is creating wealth.
Cost breakdown: This particular metric is extremely important in any finance department since costs are one of the financial pillars of an organization, no matter how large or small. Every organization needs to know where the costs are coming from in order to reduce them and, consequently, positively affect performance.
- If you see that most costs come from administrational activities, you should consider automating tasks as much as possible. By utilizing self service analytics tools , each professional in your team will be equipped to explore and generate insights on their own without burdening other departments and saving countless working hours.
- Generally, costs should not be looked upon purely on the basis of black and white. If sales and marketing cause cost increment, maybe they also deliver high volumes of income so the balance is healthy and not negative.
Satisfaction levels: C-level managers need to prepare financial analysis reports with satisfaction levels in mind. These indicators are not purely financial, but they do influence economics and can cause potential bottlenecks.
- If the financial team has a lower satisfaction level, you need to react fast in order to avoid potential talent loss that can cause the company serious money. Keeping the team satisfied by conducting regular feedback talks, and offering career progression and competitive salaries, for example, can only affect the business in positive ways since the motivation will rise as well as the quality of the working environment. In this case, you can also connect to an HR dashboard and follow the team's performance and satisfaction levels in more detail.
- If customers are unsatisfied, it can also cause damages from outside your team that can, consequently, influence financial performance. For this reason, customer service analytics should also be an important aspect to be covered in your CFO report .
The above example of financial statement is not only focused on pure numbers, as you can see, but also on the human aspect of team and customer management that every modern CFO needs to take into account in order to benefit strategies and deliver economic growth.
f) Financial Report Template For Operating Expenses
Last but not least, on our list of monthly financial statement examples, we have a template that focuses entirely on operating expenses analysis. Operating expenses also referred to as OpEx, are all expenses that companies incur through their day-to-day operations. Such as rent, equipment, inventory, salaries, insurance, materials, marketing, sales, and much more, depending on the industry. It is fundamental for businesses to track their OpEx closely and regularly as they directly affect profitability. An organization that manages to keep its OpEx at a minimum while still maintaining profitability and efficiency stands to gain a massive competitive advantage.
Our example below will help you do just that by providing a complete overview of the development of your OpEx on a month-to-month basis. Let’s explore it in detail below.
* *click to enlarge**
The value of this template lies in its level of detail. Traditional income statements track all OpEx together without differentiating between fixed and variable ones. Making it harder to extract deeper conclusions from the data. Our OpEx report above differentiates fixed and variable expenses and shows the monthly development of both compared to the performance of the previous year. This way, users can extract valuable conclusions to improve their strategies and overall financial performance. For instance, by looking at the OpEx development chart on the top, we can see that, overall, both fixed and variable expenses are higher compared to the benchmark. This can be because the company is producing more goods and services, which would result in higher costs or something else that needs to be looked into in more detail.
To do so, you can take a look at the operating ratio and net profit margin development chart. These are the success indicators that will help you understand if your cost-optimization strategies are paying off. There, we can observe a positive development in previous months with a decrease in the last observed period. Again, this could either be expected or something to be alarmed. It is important to take a deeper look into the data to ensure no big insights remain untapped.
If you are still feeling a bit lost about the KPIs shown in this example, let’s talk about them in detail below.
- Variable expenses : These are costs that are directly related to a business’s production levels. Meaning they can increase or decrease regularly, hence, the name variable. They include costs such as raw materials, labor costs, distribution and shipping, packaging, and sales commissions, among others. It is important to note that variable expenses can not be compared to any other company as they vary from industry to industry.
- Fixed expenses : As its name suggests, these are all expenses that need to be mandatorily paid every month, quarter, or year. They are not subjected to the production level but more to the functioning of the business. These include salaries, insurance, rent, and taxes, just to name a few.
- Operating ratio : This KPI shows your operating expenses as a percentage of the total revenue. It shows the ability of an organization to keep costs low while generating revenue. This means the lower the ratio, the more profitable the organization is.
Weekly Financial Report Templates And KPIs
A weekly financial statement serves to help you monitor all your short-term financial activities in weekly increments. It should be created and reviewed each week and provides a comprehensive look at the short-term performance of your business.
Now we will take a look at some financial statements examples to get a clearer picture of what can be tracked in weekly intervals.
a) Operating Cash Receipts, Disbursements, Balance
Part of a business’s budgeting process may include cash receipts and disbursements, which use actual data for cash collection to design a budget or create income statements, for example. A sample financial report on a weekly basis can help companies gain insights from accurate reporting based on using cash receipts and disbursements. Metrics and KPIs can include:
Cash flow: indicates the changes in cash versus its fixed counterparts, such as exactly where cash is used or generated during the week.
- Operating activities: measures a business’s operating cash movements, whereby the net sum of operating cash flow is generated.
- Financing activities: tracks cash level changes from payments of interest and dividends or internal stock purchases.
- Investing activities: tracks cash changes derived from the sale or purchase of long-term investments, like property, for example.
Operating activities: indicated any activities within a business that affect cash flows, such as total sales of products within a weekly period, employee payments, or supplier payments.
- Direct method: This metric obtains data from cash receipts and cash disbursements related to operating activities. The sum of the two values = the operating cash flow (OCF).
- Indirect method: This metric uses the net income and adjusts items that were used to calculate the net income without impacting cash flow, therefore converting it to OCF.
Gross profit margin: This enables your business to measure and track the total revenue minus the cost of goods sold, divided by your total sales revenue.
- This KPI is a crucial measurement of production efficiency within your organization. Costs may include the price of labor and materials but exclude distribution and rent expenses.
- For example, if your gross profit margin were 30% last year, you would keep 30 cents out of every dollar earned and apply it towards administration, marketing, and other expenses. On a weekly basis, it makes sense to track this KPI in order to keep an eye on the development of your earnings, especially if you run short promotions to increase the number of purchases. Here is a visual example:
b) Any Generated Current Receivables
Weekly financial reports can help businesses stay on top of invoicing, billing procedures, cash basis of accounting, and accounting records, and ensure that they don’t fall behind on being paid for services and goods that are owed to them by customers or suppliers. Weekly report metrics and KPIs include:
- Days sales outstanding (DSO): This measures how fast your business collects money that you’re owed following a completed sale. DSO = (Accounts receivable/total credit sales) x number of days in the period.
- DSO vs. best possible DSO: Aligning these two numbers indicates the collection of debts in a timely fashion. Best possible days sales outstanding = (Current receivables x number of days in a week) / weekly credit sales.
- Average days delinquent: Indicates how efficient your business processes are in your ability to collect receivables on time. ADD= Days sales outstanding – Best possible days sales outstanding
Top Daily Financial Report Examples And KPIs
A daily financial report is a method to track the previous day’s activities that have an impact on your accounting status but are not necessarily a strict financial metric. It can keep you apprised of all the requisite data management used to track and measure potential errors, internal production, revenue loss, and receivables' status.
As we mentioned above, these ones provide a limited vision, but you can use the examples below to see how some daily actions on problematic factors can impact your final results.
a) Tracking Potential Staff Errors
Maintaining an efficient, productive work environment and ensuring that you can identify any employee discrepancies or issues is critical to being proactive about business growth. Monitoring employees working hours and productivity levels can help you detect potential staff errors quickly, control these errors, and avoid negative impacts on your financial results at the end of the day and, ultimately, the month.
Real-time management live dashboards offer clear visuals regarding employee management processes with the following metrics and KPIs:
Organizational performance: These are key metrics for tracking and evaluating some factors impacting your performance.
- Employee overtime: overtime per employee = total overtime hours / FTE
- Absenteeism: Number of employees absent today
Work quality: These metrics help companies determine the quality level of their employees’ work performance.
- Amount of errors
- Product defects
Work quantity: These metrics indicate employee performance related to quantity, such as sales figures or the number of codes a programmer can create in a given amount of time. Quantity does not, of course, mean quality, but on monitored daily, it can reveal bottlenecks or under-production problems.
- Sales numbers: the number of client contacts, the number of calls an employee makes, and the amount of active sales leads.
- Units produced: lines produced during coding, number of keys a nurse receptionist can hit per minute, etc.
- Customer handling time: how many customer calls are answered during a specific time period, for example.
b) Measure Revenue Loss & Receivables
By tracking staff errors, you can track the money it costs your company (having a problem in production, finding the problem, and fixing it), which will inevitably end up in your financial statements as the money you lost. Tracking revenue loss can be especially beneficial for those companies with customer accounts or recurring income. A daily record helps businesses quickly monitor revenue-related factors so that they can increase their earnings. Revenue loss can also originate from one-time purchases, customers who move to your competitor, or customers who move out of the area. Metrics used to measure these factors can include:
Accounts receivable turnover ratio: This measures the number of times that your business is able to collect average accounts receivable and indicates your effectiveness in extending credits. Here is a visual example:
- A low accounts receivable turnover ratio basically indicates that you might need to revise your business's credit policies to collect payments more quickly.
Additional metrics you can monitor on a shorter time frame, such as daily, are as follows:
- Number of daily transactions
- Average gross margin
- The average cost per order
You can also be more specific about your revenue loss: categorizing where you lost what a good practice to identify which parts of your business management reporting practices have important room for improvement is. Tracking metrics like the top 10 products generating the most revenue or, on the contrary, the top 10 products generating the worse revenue will tell you a story about what needs more attention.
The revenue loss can also come from discounts or sales, for example. Monitoring on a daily basis which promotions are getting “too” popular can help you stop it before it generates more revenue loss than revenue growth that was supposed to create.
A daily, weekly, and monthly record help communicate the ongoing narrative of your company's economic processes, strategies, initiatives, and progress. As you can see, this form of an analytical report in the finance industry is an undeniably potent tool for ensuring your company’s internal as well as external financial activities are fluent, buoyant, and ever-evolving.
Why Do You Need Financial Reports?
We saw some powerful financial statement templates to empower your business, but before finishing our journey through these tools, we are going to show you some of the main ways in which your business could benefit from them. As we mentioned a few times through this article, interactive reports created with professional business analytics tools offer a clear snapshot of your business’s financial health, and they will give you the answers you need to plan strategies and tackle any issues that might arise with your finances. Here are the top 5 benefits.
- Performance tracking: If you are a loyal reader of this blog, then you know the importance of relying on data for business success. By using modern financial performance reports, CFOs, and other relevant stakeholders can have a quick and accurate snapshot of all areas of a business. This will help them make more informed decision-making as well as plan strategies and forecast future results to find growth opportunities.
- Mitigating errors: When we are talking about finances, every detail counts. Using inaccurate statements can not only damage your business’s profitability but can also expose it to legal issues if any discrepancies are found in your numbers. Many BI finance tools in the market ensure accurate reporting with the latest data available. This way, you will be able to constantly monitor the performance of your finances in every area and mitigate any errors before they become bigger issues.
- Showing financial condition to investors and stakeholders: If you have investors or you are looking for potential ones to expand your business, then a report showing a snapshot of your business performance will be a fundamental tool. On one hand, it will help you show your investors where their money went and where it is now, and on the other, it will show potential new investors or other relevant stakeholders that your business is worth their money.
- Debt Management: As we mentioned in one of our examples of financial statements, wrong debt management can damage a business to the point of no return. Investing in innovative BI solutions to generate professional statements that contain a detailed balance sheet of your assets and liabilities can help you understand your liquidity and manage your debts accordingly.
- Staying compliant with tax laws: Last but not least, one of the most important benefits of using finances reporting is to stay compliant with the law. No matter the size of your company, you have to pay taxes, and tax agents will use your financial documents to make sure you are paying your fair amount. By keeping track of this information in a professional financial status document, you will be able to reduce your tax burden and avoid any discrepancies in your numbers.
Common Challenges Of Financial Statements
While these tools are fundamental to the growth and correct functioning of any type of organization that profits, it is still a hard process that has limitations. Being aware of the challenges coming your way can help you tackle them and be prepared to generate accurate financial statements. Let’s look at some of these limitations.
- Manual work : Manual tasks are the enemy of a successful reporting process. Especially with finances, where you need to make important decisions all the time, the need for real-time reporting is critical. However, there are still many companies that build their statements manually, which means by the time it is ready, the data is no longer useful. With that issue in mind, several automated reporting tools have emerged to help mitigate the manual tasks and dedicate more time to actually analyzing.
- Manage various data sources : Data quality is the basis of a successful reporting process. When it comes to generating finance reports, it is necessary to gather data from various sources, which can be a tedious job. The issue becomes even bigger when you want to process and unify all of this information for analysis. Luckily, modern management reporting tools allow you to connect various data sources and visualize them all together in interactive dashboards with just a few clicks.
- Data literacy: Data literacy refers to the ability to understand, communicate and work with data. It represents a challenge for any reporting process, but especially when it comes to finances, as the numbers and concepts are more complex. To prevent literacy levels from becoming a bigger issue, it is recommended to assess the level of knowledge across employees and departments and provide financial and data-related training for anyone who needs it. This way, you’ll ensure everyone is on the same page and has the ability to integrate analytical practices into their daily operations.
- Accessibility and collaboration : It is very likely that an organization’s financial goals will be linked across departments and teams. Achieving these goals successfully requires a level of collaboration that is harder to achieve, especially when it comes to sharing reports and building discussions around them. If these documents are not properly shared, it is very possible that discrepancies will be found in the strategies, and that can damage the end goal. To avoid this, organizations need to rely on analytical tools with an online environment that allows them to easily share relevant information among different stakeholders in a fast and efficient way.
- Adapt to regulatory changes : Paired with the challenges coming with the data management process, there are also regulatory changes that happen all the time, and that can present a challenge for organizations. Businesses need to ensure their financial reports are rigorously complying with regulations as well as be flexible and responsive to any new changes that might arise.
- Security : With cyberattacks and data breaches becoming an increasing concern for businesses, keeping financial data secure becomes a major challenge for organizations. To prevent your information from ending up in the wrong hands, it is necessary to implement various security measures such as access controls, password-protected reports, and other things.
How To Make A Financial Report?
To create a comprehensive financial statement, you need to keep these points in mind:
1. Define your mission and audience
No matter if you're a small business or a large enterprise, you need to define your goals clearly and what you are trying to achieve with the report. This can help both internal and external stakeholders who are not familiarized with your company or finances. If you're creating an internal report just for the finances department, it would make sense to include financial jargon and data that, otherwise, would create challenges for external parties to follow.
By defining the mission and audience, you will know how to formulate the information that you need to present and how complex the jargon will be. Create a draft of the most important statements you want to make, and don't rush with this step. Take your time; the numbers, charts, and presentations come later.
2. Define goals and targets
Once you’ve defined your mission and the audience of your reports, it is time to set some goals and targets to use as benchmarks to measure the success of your financial strategies. This is an important step because goals help organizations plan their expected growth and improve based on that.
That said, there are a few steps you should follow to ensure you are setting accurate objectives. For starters, your goals and targets should be long and short-term but, most importantly, attainable. Many businesses fail in their analytical efforts because they take industry benchmarks, for example, as the end goal for their own performance. Now, while industry values are good benchmarks and they shouldn’t be discarded entirely, they should still be looked at with a grain of salt. Be honest with yourself and with the current scenario of your business, and define targets that are realistic and attainable. Consider your budget, your business size, your historical performance, and other elements to build efficient goals that are measurable in time.
3. Identify your metrics
In this step, you need to identify the key performance indicators that will represent the financial health of your company and help you measure the goals you defined in the previous step. Depending on the selected metrics, you will need to present the following:
Balance sheet: This displays a business’s financial status at the end of a certain time period. It offers an overview of a business’s liabilities , assets, and shareholder equity.
Income statement: This indicates the revenue a business earned over a certain period of time and shows a business’s profitability. It includes a net income equal to the revenues and gains minus the expenses and losses.
Cash flow statement: Details a business’s cash flows during certain time periods and indicates if a business made or lost cash during that period of time.
These financial statements will help you get started. Additionally, you might want to consider specific KPIs and their relations. Gross profit margin, operating profit margin, operating expense ratio, etc., all have different applications and uses in a relevant data story. Take your time to identify the ones you want to include in order to avoid multiple repeats afterward.
4. Choose the right visualizations
Continuing on our previous point, after specifying the financial statement and metrics you want to add, it's time to include visuals. This point is important since the average reader will struggle to digest raw data, especially if you work with large volumes of information.
The type of chart is important to consider since the visuals will immediately show the relationship, distribution, composition, or comparison of data. Therefore, the type of charts will play a significant role in your reporting practice. Here is a visual overview that can help you identify which one to choose:
In the overview, we can see that scatter plots and bubble plots will work best in depicting the relationship of the data, while the column chart or histogram is the distribution of data. To learn more about a specific chart and details about each, we suggest you read our guide on the top 30 financial charts .
5. Apply design best practices
By now, you have the planning of your report ready. The next step is to bring everything to life by generating the actual report. Choosing the right chart type is the first step, but there are other design best practices that should be followed to ensure the process is as efficient as possible.
The first and most important best practice is to avoid overcrowding your reports. Putting too much information in them will make everything confusing and harder to understand, which can translate into poor strategic decisions for the future. Prioritize the most important KPIs that enable you to tell a story about your performance as well as some context to make sense of the information. Arrange your charts in a way that makes sense, and that helps the audience understand everything.
Another important design best practice is to think carefully about colors. While it is very tempting to use a different color for every KPI, it is not recommended to do this. You should stick to only a few colors that are not too strong. You can even use different shades of the same color to differentiate data points, as you saw in our examples section. It is also a good practice to use your business’s color palette to make it more personalized and familiar to the audience.
6. Use interactive features
Traditionally, finance reporting has been a static practice that mainly contained outdated data that was not entirely valuable. As you’ve learned throughout this post, this is no longer the case. Today, these reports contain a mix of real-time and historical insights that enable decision-makers to extract insights and act on them as soon as they occur. Part of the success of this modern approach relies majorly on interactivity. That is why our next best practice or tip is to integrate interactive features into the process.
Tools such as datapine offer a range of interactive functionalities to integrate into your financial reports. For instance, you can add different tabs with extra information and have it all together in a single report. This way, you’ll avoid overcrowding the report or having to generate multiple different ones. Plus, if you need to visit another tab quickly, you have the option to link that tab to a specific KPI and be transferred to it just by clicking on the chart.
Another interactive feature that makes the reporting process way more efficient is drill downs and drill throughs. They basically enable users to go into lower or higher levels of data, respectively, without the need to jump into another chart. For example, if you are looking at revenue by country but want to dig deeper into a specific country, you can click on it, and the chart will adapt to show revenue by city of that country. The same thing can be done upwards to look at revenue by continent.
7. Use modern software & tools
To be able to manage all your finance reports effectively, you will need professional tools. The traditional way of reporting through countless spreadsheets no longer serves its purpose since, with each export, you manage historical data and don't have access to real-time insights. The power of a modern dashboard builder lies within the opportunity to access insights on the go, in real-time, and with refreshing intervals that you can set based on your needs.
Moreover, professional dashboard software comes with built-in templates and interactivity levels that traditional tools cannot recreate or offer in such simplicity but, at the same time, a complexity that will make your report more informative, digestible, and, ultimately, cost-effective.
To manage financing performance in comparison to a set target, you can also use a modern KPI scorecard . That way, you will not only monitor your performance but see where you stand against your goals and objectives.
8. Automate your financial management report
Automation plays a vital role in today's creation of company financial reports. With traditional reporting, automation within the application is not quite possible, and in those scenarios, professionals usually lose a lot of time since each week, month, quarter, or year, the report needs to be created manually. Automation, on the other hand, enables users to focus on other tasks since the software updates the report automatically and leaves countless hours of free time that can be used for other important tasks.
For example, you can schedule your financial statement report on a daily, weekly, monthly, or yearly basis and send it to the selected recipients automatically. Moreover, you can share your dashboard or select certain viewers that have access only to the filters you have assigned. Finally, an embedded option will enable you to customize your dashboards and reports within your own application and white label based on your branding requirements. You can learn more about this point in our article, where we explain in detail the usage and benefits of professional white label BI and embedded analytics.
9. Stay Compliant
We already mentioned the regulatory side of financial reporting a couple of times throughout this post, but it is such an important step that we could not leave it out of this list. That is because companies that fail to meet the governmental requirements for their finance statements can face critical consequences that will throw all other efforts down the drain.
In this sense, there are different requirements depending on the country or continent. In the USA, companies need to adhere to the GAAP guidelines, which basically provide a set of rules and standards for entities to prepare their reporting in a consistent and transparent way. On the other side, countries from the EU need to follow the IFRS rules. Which obligates listed companies to follow a set of rules to prepare their statements. The IFRS guidelines provide a common language used by more than 100 countries. Through that, UE regulators can compare organizations across “international boundaries.”
10. Learn from the process
This might sound like an obvious step, but it is often overlooked. Once you are done generating your financial report, you should gather internal feedback from employees and any other relevant users and learn from the process. There is no secret recipe for the perfect finance report. Each company has different needs and resources. Therefore, tweaking little details to make the process efficient and easier for everyone involved can reap significant rewards in the future.
As you’ve learned through this list of best practices, these tools are more digestible when they are generated through online data visualization tools that have numerous interactive dashboard features to ensure that your business has the right meaningful financial data. Finally, these statements will give your business the ability to:
- Track your revenue, expenses, and profitability.
- Make predictions based on trusted data.
- Plan out your budget more effectively.
- Improve the performance of your processes.
- Create fully customizable reports.
Comprehensive Reports For The Complete Financial Story Of Your Business
We’ve explained how to write a financial report, examined the dynamics of a monthly, daily, and weekly report templates, and explored examples relating to specific areas of the business with their related KPIs as well as some key benefits. Now, it’s time to look at the concept as a whole.
Financial reporting practices help your business obtain a clear, comprehensive overview of where your company is at and where you should plan on going. When augmented with crisp, easy-to-read visualizations in the form of financial dashboards , your business can quickly comprehend and accurately measure critical components of your status over specified time periods.
A financial statement template, as we presented above, can also help you answer critical questions, such as What can your business do with an extra $500k in cash? Will you be able to borrow less money, invest in new technology, or hire trained personnel to improve your sales?
Using datapine’s seamless software, your business will be able to see the full financial story of your company come to life and have a better grasp of your future path.
When it comes to your business’s finances, shooting in the dark or using antiquated methods of analysis or measurement will not only stunt your organizational growth but could lead to mistakes, errors, or inefficiencies that will prove detrimental to the health of your business. Data-driven dashboard reporting is the way forward, and if you embrace its power today, you’ll reap great rewards tomorrow and long into the future.
Do you want to improve your business’s financial health today? Try our 14-day trial completely free!
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What is financial reporting definition, importance, and types.
As a business owner, you understand that success can only truly be a success when it’s indicated by measurable, comparable, and accurate figures. Financial reporting is one of the most important parts of this process. It’s used to manage the success of your business, stay on track for your goals and milestones, and help you when making important decisions in the future.
Financial reporting provides financial information about businesses that is useful to investors and other users in making decisions. Financial reporting uses financial statements and reports to disclose financial data that indicate the economic health of a company over a specific period of time. The information is vital for management to make decisions about the company’s future and provides information to capital providers like creditors and investors about the profitability and financial stability of the company.
A strong financial reporting system will help guide you and your business to new heights—provided it’s done the right way. Here’s what you need to know:
- The four main financial statements include a balance sheet, an income statement, a statement of cash flows, and a statement of changes in equity (or a statement of shareholders’ equity).
- Financial reporting isn’t just required by law; it’s essential to ensure the growth and long-term success of your company.
- Financial reporting is intended to help track a business’s income, cash flow, profitability, and overall viability in the long run—but it needs to be done correctly.
- The goal of financial reporting is to present financial information that is complete, accurate, comparable, verifiable, understandable, and timely.
- Publicly traded U.S. companies are required by law to follow GAAP (generally accepted accounting principles) in their financial reporting.
This article will also review the following areas:
Types of Financial Reports
Why is financial reporting important, benefits of financial reporting, what is the purpose of financial reporting, what does financial reporting include.
Frequently Asked Questions
As a business owner, you’re likely to work in a few different formats of financial reporting, depending on your specific needs and goals at that moment. Here are a few of the most common and most important types of financial statements:
Think of a balance sheet as a snapshot of your business’s financial health at a specific date. These are often considered one of the most essential financial reports since they clearly present your business’s, and shareholder’s equity, providing a clear, overall perspective on your business’s financial status. A classified balance sheet distinguishes current and noncurrent assets and liabilities.
Also sometimes called a Profit & Loss Report, an income statement is a common tool to help you obtain information about your company’s revenues, expenses, gains, and losses during a particular period. Unlike the balance sheet, which provides information about a company’s financial position on a given date (for example, as of December 31, 20xx), the income statement summarizes the changes in shareholder’s equity that occurred during a period (year, quarter). Since this report focuses on profit-generating activities, it can be a very useful tool for potential investors and creditors.
Statement of Cash Flows
This type of statement is used to analyze how much cash is generated by the business and where it is spent. This statement shows changes in cash during the period. It is often used by business owners in need of insight into their business’s insolvency and liquidity. It can be used to track and manage spending as well as to help in securing loans and other funding.
Statement of Shareholders’ Equity
This statement is intended to help business owners keep track of any changes in retained earnings after dividends are released to shareholders. Its purpose is to report changes in shareholders’ accounts during the period from investments by owners, distributions to owners, net income, and other comprehensive income. This is invaluable for providing insight to those supporting the business financially. It also provides more in-depth insight into a company’s performance thanks to reporting on equity withdrawals and dividend payments.
Notes to Financial Statements
Notes to financial statements (also called financial disclosures) refer to any other notes and information provided alongside financial statements. These notes allow other readers to better read and interpret the information provided in statements as well as evaluate the firm’s performance. The notes usually include a summary of significant accounting policies (accounting methods, depreciation methods, and inventory measurement methods, like LIFO or FIFO). For instance, a note to financial statements will often state the ‘basis for accounting’ (whether cash or accrual accounting methods were used). Other notes will explain how figures were calculated in detail, providing greater reliability and accountability to your reports.
When done properly, financial reporting offers many benefits to all who are involved with a business. With that said, however, the main goal of financial reporting is to provide insight and information to stakeholders, business owners, partners, and other important roles. Using the information gained from financial reporting, these parties can make more informed decisions for the good of the business and their investments.
Financial statements provide various important financial information that helps investors, creditors, and analysts evaluate a company’s financial performance. A lot of the financial information in financial reports is also required by law or by accounting standard practices.
Financial reporting helps management communicate important business events and transactions, as well as past successes and future expectations of the business.
Here are a few reasons why financial reporting is important to your business:
1. Ensuring Tax Compliance (and Optimizing Liability)
The most important reason to use financial reports is that you have to and are required by law to do so. The Internal Revenue Agency uses these reports to make sure you’re paying your fair share of taxes.
Businesses that make a lot of profit have to pay quite a lot of taxes. Accurate financial reporting helps reduce their tax burden and helps them ensure that all their resources are not depleted in a short amount of time.
2. Showing Financial Condition to Potential Investors
Potential investors want to know how well the company is doing before they invest. Investors, creditors, and other capital providers rely on a company’s financial reporting to gauge the safety and profitability of their investments. Stakeholders want to know where their money went and where it is now. Financial statements like the balance sheet address provide detailed information about the company’s asset investments and outstanding debt and equity components. Investors and creditors can use this information to better understand the company’s position and capital mix.
3. Evaluating Operations at Scale Over Longer Periods of Time
The information on a balance sheet is a snapshot of a company’s assets and liabilities at the end of a financial period. However, a balance sheet doesn’t show what operational changes might have occurred to cause changes in the financial condition of a company. Operating results during the period are also something investors need to consider. A change statement, such as an income statement , shares results about sales, expenses, and profit or losses during the period. Using the income statement, investors can both evaluate a company’s past income performance and assess future cash flow.
4. Examining and Analyzing Cash Flow
A company’s profits are reported in the income statement but provide no direct information on the company’s cash changes. A company incurs cash inflows and outflows during a period from operating activities and non-operating activities, namely investing and financing. Cash from all sources, not only revenue from operations, is what pays investors back. That’s why a cash flow statement is an important statement for an investor to review. The cash flow statement shows the changes in cash during a period of time. By reviewing this statement, investors can know if a company has enough cash to pay for expenses and purchases.
5. Examining and Distributing Information on Shareholder Equity
The statement of shareholders’ equity is important to equity investors. It shows the changes to various equity components like retained earnings during a period. Shareholder equity is a company’s total assets minus its total liabilities and represents a company’s net worth. Steady growth in a business’s shareholders’ equity because of increasing retained earnings , as opposed to expanding the shareholder base, means higher investment returns for current equity shareholders.
6. Help with Business Decision-Making, Planning, and Forecasting
When a business needs to make a decision, analyzing financial statements is crucial. Managers can look at the value of the assets that a business currently holds and decide if they can afford to purchase more to expand business operations. Conversely, when the value of assets is severely depreciated, managers can decide if they need to be sold off.
7. Mitigate Financial Reporting Errors
Accurate financial reporting can help businesses catch costly mistakes and inter errors early on in the process. There is no better way to detect illegal financial activities than through discrepancies found in financial statements. Through a reconciliation process, errors that have been made can be found. Companies spend a lot of time reconciling their books of accounts and verifying each journal entry, so they can find if an accounting error has occurred or if anyone has tampered with any part of the business.
Still wondering about the benefits of setting up a strong financial reporting system for your business? While it can lead to additional administrative work, good financial reporting offers countless benefits to your business as well. These include:
- Optimized debt management
- Real-time insights and tracking for quick business decisions
- Identification and forecasting of business trends
- Managing liabilities and keeping them in check with assets
- Greater ease of access and communication of important financial records
- Cash flow insights and analysis
- Providing useful information to current and potential investors and creditors
- Internal controls to prevent fraudulent activities
The main objective behind financial reporting is to provide business owners, shareholders, and other decision-makers with all of the information they need to make the best choices for the company. Financial reporting affects everything from cash flow to dividends and should account for all streams of profit and loss to ensure a complete, useful picture.
Generally, financial reporting provides information about the results of operations, financial position, and cash flows of a business. Readers review the statements to decide the allocations of resources.
Financial reporting is a way of following standard accounting practices to give an accurate depiction of a company’s finances, including:
The process of producing statements that disclose a business’s financial status to management, investors, and the government is known as Financial Reporting.
Financial reporting includes:
- External financial statements (e.g., income statement, statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders’ equity)
- Notes to the financial statements
- Communications regarding quarterly earnings and related information (often via press releases and conference calls)
- Quarterly and annual reports to stockholders
- Financial information and reports posted on a business’s website
- Financial reports to governmental agencies, including quarterly and annual reports to the Securities and Exchange Commission (SEC)
- Documentation pertaining to the issuance of common stock and other securities
Financial reporting can be a complex system to put into place, but it’s nevertheless essential to running a successful business. Though each and every company has a slightly different system to meet its unique reporting needs, you’ll find much in common from business to business.
If you’re searching for a tool to help make financial reporting simpler for your business, FreshBooks is here to help. Our cloud-based accounting services are ideal for the quick, easy filing of important financial information, and reports such as your cash flow statement, income statement, and more can be generated within just a couple of clicks. Save yourself the time, money, and margin for error that comes with hand-creating these essential financial reports— click here to try FreshBooks for free and see firsthand the difference it can make for your company’s financial health.
FAQs on Financial Reporting
More questions on setting up your financial reporting system, tracking financial performance, or tools for the perfect financial statement? Here are answers to some of the most commonly asked questions.
Is financial reporting the same as accounting?
No. While both financial reporting and accounting tend to deal with the same information, these are two very different (but interconnected processes). Financial reporting focuses on compiling and organizing financial information, whereas accounting refers to interpreting, analyzing, and making decisions based on that information to ensure a business’s financial health.
What is a financial reporting example?
Financial reporting can be internal (e.g., profit and loss statements provided to your accountant) or external (e.g., holding a press release or conference to announce annual/quarterly earnings to stockholders). If your company has shareholders, you’ll likely be doing a fair amount of both kinds of financial reporting.
Who prepares financial statements?
A company’s management is responsible for the integrity and neutrality of financial statements and needs to sign off on them. Typically, business directors will prepare financial reports. In a rigorous system, these statements would then pass through an auditor (or an audit committee), who is responsible for ensuring the information is accurate and free of any errors or discrepancies.
How do I become a financial reporting analyst?
Reporting analysts are expected to have a minimum educational level of a bachelor’s degree in business, accounting, finance, information management, or a related major. You’ll also need demonstrable experience and a strong working knowledge of the financial analysis process. Lastly, it’s important that you know and follows the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
What are financial reporting skills?
Certain skills can be a big help in creating better, more accurate financial reports. These include knowledge of reading and analyzing financial statements, generating reports with the help of tools like Excel or accounting software like FreshBooks , and familiarity and compliance with the Generally Accepted Accounting Principles, or GAAP, as well as the International Financial Reporting Standards (IFRS).
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Financial Reporting vs. Financial Accounting: What's The Difference?
Financial reporting software can transfer your financial reporting and accounting into a much easier task by keeping all of your information up to date and in one place. Let’s explore how this can be implemented across financial accounting and reporting.
What is financial reporting?
Financial reporting is the process of tracking, analysing and reporting your company’s financials. Reporting focuses on surveying the information you’ve gained through accounting processes. This analysis enables your business to assess your financial position, evaluate past performance and forecast future performance. Essentially, reporting takes a more overarching view of a business's financial position, which can help identify any areas of concern or strength. There are different types of financial reports , including:
- Cashflow forecast — one of the main objectives of financial reporting is cashflow forecasting, which takes a short to medium-term view of cashflow. This ensures that a business is maintaining a strong cash flow without any immediate concerns.
- Sales forecast — this financial reporting shows where future sales are expected to come from. This focuses on the customer pipeline, looking at the likelihood of conversion and adding value to the business.
- Risk reporting — reporting on potential present or future financial risks is valuable information that the wider business should be aware of. This will help safeguard against any future potential financial pitfalls.
- OKR (objectives & key results) reporting — reporting on future objectives and key results can help boost focus within the business, making future goals both clear and achievable.
What is financial accounting?
Financial accounting focuses on collecting a business's financial data in preparation for reporting, and keeping track of income and expenses. A central aspect of financial accounting is collecting key data, including receipts, invoices and reports that relate to business income and expenses. Accounting also involves maintaining and managing financials whether this is done manually or via cloud accounting software . Some key accounting roles include:
- Collecting financial data on income and expenses.
- Managing the general ledger to keep all transactions in one place.
- Generating the income statement, balance sheet and statement of cash flow.
What are the differences between financial reporting and financial accounting?
So, what are the key differences between financial reporting and accounting? And how might you use them in your business? Let’s explore some key differences below:
- Storing vs. analysing — accounting is for generating and storing financial information to be later analysed via financial reporting.
- Compiling information — financial reporting is for compiling all information, which isn’t possible with financial accounting.
- Accounting rules — with financial accounting, specific rules need to be followed in order to remain consistent and keep business accounts running smoothly. If rules aren’t followed, calculations can be completely disturbed, which results in inaccurate financial reports.
- Forecasting — financial reporting focuses on forecasting future finances and influencing future expenditures. Accounting gathers this information so that it can be analysed with reporting in the future.
The key objectives of financial reporting and accounting also differ from one another:
- Keeps a record of financial history
- Provides a picture of a company’s financial position
- Gathers financial information in an easy-to-understand format
- Predicts the financial future
- Analyses and interprets a company’s financial position
- Focuses on cash flow and economic value
Is financial accounting or financial reporting more helpful for businesses?
Both financial accounting and reporting are important for your business and each serves its own purpose to shed light on your business finances. I, in fact, they go hand in hand. Financial accounting is vital for the day-to-day running of a business. Keeping books up to date and maintaining consistent processes is key to keeping track of income and expenses and being able to prepare reports.
Financial reports are important because they can communicate to the wider business and investors how a company is performing. They can also help businesses to plan ahead, predict future outcomes and learn from past mistakes. Stability and consistency lie at the heart of a successful business in regard to financials. Both financial reporting and accounting are vital components of this.
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What is financial reporting?
Financial reporting (definition).
Financial reporting aims to track, analyse and report your business income. This helps you and any investors make informed decisions about how to manage the business.
These reports examine resource usage and cash flow to assess the financial health of the business.
Types of financial reports
- Balance sheet
- Profit and loss statement
- Cash flow statement
- Statement of changes in equity
Three main goals of financial reporting
1. Provide information to investors
Investors want to know how cash is being reinvested in the business, and how efficiently capital is being used. Financial reporting helps investors decide whether your business is a good place for their cash.
2. Track cash flow
Where is your business’s money coming from and where is it going? Is the business making a profit or a loss? The answers to these show how well your business is performing, and whether it can cover its debts and continue to grow.
3. Analyse assets, liabilities and owner's equity
By monitoring these, and any changes to them, you can work out what to expect in the future, and the growth potential for the business.
Financial reports adhere to a group of taxation, accounting and legal requirements, called the International Financial Reporting Standards (IFRS). This is so a business’s finances can be understood all over the world – a necessity with the increase of global companies and international shareholders. The US is currently an exception to this as companies there are required to use the Generally Accepted Accounting Principles (GAAP).
See related terms
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.
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