How to Understand Complete Company Financial Reports

Lovata Andrean

How to Understand Company Financial Reports

Rancakmedia.com – So that companies do not experience losses, we should understand about company financial report, in the article below we will provide the information.

An entrepreneur's ability to succeed depends largely on their ability to understand financial statistics. Even though financial reports are not the spearhead of a company, they are the most important element that must exist in a company.

With financial reports, business owners will be able to know how well the business has been run. Understanding accounts finance correctly can be very useful for entrepreneurs in making assessments.

When you examine a company's financial statements, you will see a balance sheet, income statement, change in equity statement, and cash flow statement. In financial reports, we can find out how much the business is worth, how much debt the company has, how much capital the company owner has, the company's profit or loss, or even what the company's money is used for.

Main Components of Understanding Company Financial Reports

There are many important elements of a company's financial reports that must be present, namely:

  1. Financial Position Report or Balance Sheet
  2. Income statement
  3. Statement of Changes in Equity
  4. Cash flow statement
  5. Notes to Financial Reports

Financial Position Report or Balance Sheet

The balance sheet, also known as statement of financial position in English, is a document used to determine the current financial situation of a business. We'll learn how much cash was last paid, what sales are outstanding to customers, how much the company owes suppliers, and more in this report.

Main Components in the Balance Sheet:

Below are some of the main components of the balance sheet, as follows:

Aset

Assets are assets owned by the company. Assets are separated into current and non-current assets.

Current assets are assets that are used for a short period of time, generally one year. Cash and bank deposits, outstanding sales receivables, unsold inventory, advances for payments, and other assets with a useful life of less than one year are short-term assets.

Meanwhile, non-current assets are assets that are used for a long period of time, generally more than one year. Non-current assets are assets that have a useful life of more than one year, such as land, buildings, cars, computers and other company equipment.

A company's ability to meet its short-term commitments can be measured by looking at its current assets. So if there is an instant payment of an obligation, what will be observed first is how much money is left for the obligation.

Liability or Liability

Liabilities are things that an organization owes money to another person or group for, such as debt.

Liabilities are separated into short-term and long-term liabilities and assets.

Liabilities with maturities of less than one year are referred to as “short-term” in the context of limited liability companies. For example, a company owes bank debt, tax debt and salary debt for one year which must be paid in the near future.

A company's long-term liabilities are debts that must be paid back over many years. For example, bank debt with a loan term of more than one year, and so on.

Equity

Company equity refers to the money that company owners have put into the business. Here we will find out how much capital the owner of the upgrading company has in a certain time period.

A balance sheet would be incomplete without these three important elements. The short balance formula is:

Assets = Liabilities + Equity

The asset value must be balanced between liabilities and equity. So, the balance sheet is usually referred to as a balance sheet or balance report between the company's assets and the sources of its wealth.

The conclusion in understanding the financial position statement/balance sheet is how much money flows into the company and comes from anyone (seen in equity and liabilities), then what money is spent on and where it is trapped (as seen in assets).

Income statement

A profit and loss report, or in English, an income statement, is a report to find out how much income a company generates, how much operational costs it has, and whether the company makes a profit or loss within a certain period of time.

The following are the main components of an income statement:

  1. Sales revenue
  2. Cost of Revenue / Sales
  3. Gross profit
  4. Operating expenses
  5. Operating profit
  6. Other Income (Expenses).
  7. Taxation
  8. Net profit

The short formula for an income statement is:

Income – Expenses = Profit or Loss

The income statement is usually prepared for a period of one year.
as a way to measure a company's operational efficiency during a calendar year. Whether the targeted goals are in accordance with predictions or not,

An investor's net investment income is often included in the income statement. The profit or loss figure will influence investors in deciding whether to continue with the investment plan or not.

If you look at the income statement, you'll see what we mean.

Statement of Changes in Equity

Tracking how much equity a company's owners have at any one point in time can be done through a report called the Shareholders' Equity Statement.

In this report on changes in equity, we will find out whether there were new sources of capital entering the company during that time, whether there were dividend payments in cash or not, and how much retained earnings can still be accessed as the company's reserve funds.

Cash flow statement

A cash flow statement, also called a Cash Flow Statement, is an additional report that must be included in a company's report. The goal is to show how real cash moves in and out of the company.

With a cash flow report, we will know exactly how much money comes in and how much money goes out for activities in each post in real terms. Why is it original? Because the cash flow report below describes the actual cash traffic conditions. Cash receipts are one example of how real receipts differ from those shown on the income statement.

Main Components of Cash Flow Financial Statements

Among the most important elements of the cash flow statement are the following:

Cash Flow from Operating Activities

Cash flows included in this category are entries in the profit and loss statement and the statement of financial position/balance sheet on current assets and current liabilities. For example, operational income that comes in the form of cash or bank accounts, real operational costs, taxes paid in cash, and so on are examples.

Summary of the basis for understanding cash flow from operational operations, especially whether there is still an excess difference in the form of money after revenue has been deducted from costs, because profit on the income statement does not always show profit in actual money.

Cash Flows from Investing Activities

Cash flows included in this category are elements in the balance sheet, especially non-current assets. The value of fixed assets sold and purchased or not in one year, and whether there is still a difference in cash from investment activity cash flows are explained in this cash flow section.

Cash Flow from Financing Activities

Cash flows included in this category are balance sheet components, primarily long-term liabilities and equity. an overview of the cash flows of financing operations, including the amount of capital received and the sources of that capital, such as third party loans or contributions from company owners.

Even though financial reports are an important issue in a company, they have limitations, including:

Financial reports are exclusively quantitative, especially in the form of financial data, and are not based on qualitative facts. Therefore, if there are fake financial accounts, they do not reflect the true situation of the company.

Financial reports are historical, meaning that the company's financial reports were published in the past. Meanwhile, if there is a credit financing check, it cannot be verified in the future. As a result, financial reports are not used as the sole basis for decision making.

Financial reports are often not easy for lay people to understand. This is due to the accounting jargon used to display financial figures.

FAQ

The following is an example of a question and answer sentence about a company's financial statements:

What things should you pay attention to when managing company finances?

Below are several things that must be considered when managing company finances, as follows:

  1. Keep financial records regularly and concisely.
  2. In managing company finances, it is very important to prepare financial reports well and simply
  3. Personal and company funds should not be mixed.
  4. There is transparency
  5. Record all business transactions.
  6. Always keep proof of transactions

Conclusion

Cash flow statement are additional company financial reports that must be included in the company's annual report. the goal is to show how real cash moves in and out of the company. Cash receipts are one example of how real receipts differ from those shown on the income statement.

Cash Flow from Operations is a basic summary of cash flow from operational operations. Cash flows included in this category are elements in the balance sheet, especially non-current assets. The cash flow overview of financing operations includes the amount of capital received and the sources of that capital.

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Lovata Andrean

Hi, I'm Lovata, I'm not Ai but I am a content writer for SEO, Technology, Finance, Travel, Cooking Recipes and others. I hope this can be useful for all my friends. Thanks