Definition
Financial statements act like a business’s progress report, highlighting its financial standing over a set period.
- Balance sheet gives a snapshot of the company’s assets, liabilities, equity at a specific point in time;
- Income statement, or P&L statement, shows how much money the company made and spent over a period, highlighting profits or losses;
- Cash flow statement tracks the movement of cash into and out of the business, providing insight into how effectively the company handles its finances.
Why it matters
Each financial statement plays its role, showing what a company owns, what it owes, how much money it’s making, and how effectively it’s managing its cash.
For business owners, these statements guide decisions on everything from budgeting to investments and expansions. Investors and lenders also rely on financial statements to decide whether to invest in or lend to a company, as they need to know if the business is profitable and financially stable.
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