Financial statements are documents that detail how a business uses its funds. There are several types of financial statements, including balance sheets, income statements, cash flow statements and statements of shareholder equity. Financial statements are often intended to be looks into the business's current status, and serve many uses. Shareholders themselves are often very interested in the statements and what they say about the company.
Financial Condition of Owned Companies
Financial statements are an easy way for shareholders to gauge the general condition of a company. Taken together, the statements provide a useful snapshot that allow investors to keep up with company financial decisions and mark increases in growth or changes in strategy. Financial statements are a vital source of information for most curious investors.
Many companies release a package to shareholders every quarter or year that includes the financial statements, but also often details extra information that the company wants shareholders to know. For the statements, companies are required by law to reveal basic financial information. But many organizations take an extra step and include reports on where the business is heading and why it has made recent choices. This allows shareholders to know what to expect from the business as well as how it has done previously.
Shareholders also care about financial statements for a more specific reason: revenues. Each corporation has a dividend structure that pays shareholders a certain amount of profits. Dividend structures are often based on revenues and income, so shareholders can get a good idea of how much they can expect to profit through dividends and, if not, where the company is spending its money instead.
Financial statements are given to shareholders because a company must be open and honest concerning its financial choices. However, this also gives the business's investors the chance to spot threats to the company's solvency or current goals. Financial statements can show increasing debt, risky investments and misuse of cash that can make shareholders grow suspicious and decide to sell their stock if they believe the company is failing.