What is a Financial Report, Meaning, Types, and Importance for Business

Financial reports are crucial in a company and are important for getting investors.

This is because financial reports play an important role in providing information on financial conditions and performance.

Reach Reporting even explains that business development is assessed directly from their financial reports.

To understand more deeply what financial reports are including their types and uses, see the article below!

Definition of Financial Reports

Quoted from Indeed, financial reports or financial reporting are the process of documenting and communicating financial or financial activities over a certain period of time.

The majority of financial reports from companies are prepared quarterly or annually. This depends on the policies of each company.

Some companies make financial reports in the form of external, internal, or both reports.

External reports are financial reports that will be used by external parties or outside the company. Meanwhile, internal reports are reports used by company management.

Launching Net Suite, external reports usually include financial reports for taxes, investors, and other external parties.

Meanwhile, the purpose of internal reports is to provide information on financial activities with decision makers in the company.

Financial reports also usually contain the company's future potential, position, and business growth.

The following are mandatory things that must be included in financial reports:

• Company cash flow;
• Asset and liability evaluation;
• Shareholder ownership analysis;
• Company profit value.

Types of Financial Reports

Each type of financial report has its own focus. These types of reports aim to provide clearer information related to a particular topic.

On average, companies have three key focuses in financial reports, namely the balance sheet, income, and cash flow.

However, some companies also add shareholder ownership. For more details, here are the types of financial reports:

1. Balance sheet

The balance sheet in the report will contain total assets, liabilities, and ownership for a certain period.

The balance sheet will show the financial position of a company by listing the company's assets with the equation: assets = liabilities + equity.

Usually the balance sheet or financial balance sheet will be made per quarter and become input data for the annual financial report.

Usually the financial balance sheet will contain information in the form of:

• Liquid assets including cash, deposits, short-term securities or securities, and debt securities.
• Current assets including receivables, inventory, fixed assets.
• Current liabilities such as short-term and long-term debt, wage debt, dividends, taxes, and client payments.
• The equity value of shareholders or shareholders such as capital gains and dividends.

2. Income

If the financial balance sheet contains the activities that exist at that time in the company, the income report contains these processes over a longer period of time.

Companies usually make income reports per quarter and become parameters or monitors of financial processes for one year.

This income report is the same as a profit and loss document or report. There are several key elements that must be included in the income report, namely:

• Operating income which includes the results of sales of products or services offered by the company.
• Gross revenue and net revenue, including total sales revenue and remaining revenue after deducting operating expenses.
• Non-operating income, investment returns, royalty payments, and capital gains.
• Primary expenses such as general and administrative expenses and other expenses.
• Secondary expenses such as loans, capital or assets lost or reduced.

3. Cash Flow

The cash flow statement contains a summary of cash income and expenses during a certain period.

This report is important to measure the efficiency with which a company can pay expenses and debts and how well the business can fund operations.

Often this report is a reference to whether the company's revenue-generating activities such as the sale of products and services have generated revenue and can support expenses.

The cash flow statement also provides information to potential investors about the investment risks of a business.

The important thing in the cash flow statement is the efficiency of current business activities, expenses, and income.

4. Shareholder Ownership

Shareholder ownership or equity is usually also included in the balance sheet.

However, some companies make a separate report to document it.

The shareholder ownership report usually contains information on the amount or value of investments and the main owners of the company.

The investment can be in the form of stocks and securities that provide dividends in a certain period.

The Importance of Financial Statements for Your Business

Understanding financial statements is essential for business. Why is that? Here are some important things from financial reports:

1. Tracking Income and Expenses

Financial reports act as a forum for reviewing important business processes, namely income and expenses.

Financial documentation is needed to form good financial management and budget allocation.

In addition, by knowing the income and expense process, you can form a strategy for which areas should be maximized budget.

Accurate financial reports are a good tool for measuring important matrices of a company's financial condition.

2. Providing Essential Data and Information

Many parties rely on a company's financial reports.

This report will later become a reference for many parties such as shareholders, executives, investors and overall company management to make decisions.

In addition to making decisions, data and information in financial reports are also important for budget plans and monitoring company performance.

3. Getting Investors

If your company's financial reports are unclear, getting business investors is difficult.

One important aspect of finding investors is ensuring that your company's financial reports are clear, accurate and focused.

When financial reports are unclear, the company's financial condition will be considered unstable and investing will certainly be very risky.

4. Helping Financial Analysis and Decision Making

Financial reports play an important role in financial analysis to support better decision making in the company.

By using financial reports, accountability will increase and support financial data analysis.

Income statements, balance sheets, can provide real-time information to help analysis.

That way it will be easier to identify the main budget and also do forecasting or estimates more accurately.

Financial reports play an important role in every crucial aspect of the company, so it is important to understand and make them accurately.

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