Financial Statements - A Key Tool To Measure A Company's Performance

By Author: Ann Philip
Total Articles: 91
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All public limited companies have to publish their quarterly and annual financial results to show their performance for a particular period. Maintaining a sound financial performance every year is an important part of a growing business, especially in the current economic scenario. People judge companies based on their financial results. The success story behind each and every company is based on the top financial planning and management.

The companies use financial statement for both internal and external purposes. The company managers and top executives use financial statement internally to plan business and set targets for the upcoming period. They also use financial statement for a particular period to do a comparative performance study. That year-over-year study can help them to know about the company's strength and weakness. This consequently help them to make necessary changes in comparison with macro economical data and forecasts. Apart from company officials, investors and shareholders also check the company's financial statement to measure its performance. Based on the company's progress or setbacks, they will ...
... decide whether to invest in it or not. The government also needs the financial statement of a company to determine the tax charge.

The companies prepare financial statements in four main types. They are balance sheet, profit and loss account, cash flow statements and income statements. Balance sheet gives a clear picture about the company's assets, liabilities and shareholders' equity. This very well helps a person to know about the company's financial condition and about its future.

Assets
Fixed Assets – Land, plant, equipment, machinery etc comes under fixed assets category. These are considered as long term investments and are usually accounted as expenses upon purchase in the balance sheet. Current Assets - For a company its current assets include cash, securities, bonds, inventories, prepaid expenses etc, which can be converted into cash within a year. Other assets – This includes patents, copyrights, royalties, exclusive contracts and notes receivable.

Liabilities
Current Liabilities- this can be money payable to individuals or taxes payable to financial institutions within one year. Long-term liabilities – The companies will get more than one year to pay their long term liabilities. Long term liabilities include long-term loans, mortgages and equipment loans. Shareholder's equity - The share holder's equity is the money or other forms of assets invested in to the business by the owner or number of owners. Depending on the performance of the company dividends will be paid to all and the net profit that is not paid to owners will be added to shareholders equity. Similarly, if the business faces a loss, then that loss will be incurred form the shareholder's equity.

Another type of financial statement submission is profit and loss account. This gives the summary of the expenses and income of a company. By calculating the total revenue and subtracting it with expenses, we will get profit and loss account. This clearly states a company's performance for a particular period.
Cash flow statements – This statement shows how money will flow around a business at a particular period. This helps us to determine the liquidity of a company at a given period and plan its future ventures. Income Statements - Income statement gives us a picture about the operating business and non-operating business of a company. It will clearly state about the expenses and sales for a given period. Most of the companies publish income statements based on the Generally Accepted Accounting Principles, or GAAP.

Most of the company's request for a conference call to discuss about their current performance and the goals set for the future. Some company officials even give a description about their company's performance via telephone with service from providers like FiOS Digital Voice. However, it is the financial statements are useful, because they show the financial condition of a company at a given period.