Financial

Statement

Presented By:
07. Shreshtha Singh Chauhan
41. Tanisha Tripathi
Introduction

• Financial statements are formal records that provide a

summary of a company's financial activities,
performance, and position over a specific period of time.
They are typically prepared by the company's
management and are aimed at presenting the financial
information in a structured and standardized format for
various stakeholders, including investors, creditors,
regulators, and internal management.
The main types of financial statements include:

Income Statement (Profit and Loss Statement): This statement summarizes the revenues, expenses, and
resulting net income or loss for a specific period. It provides insights into a company's profitability by showing
whether it generated more revenue than it incurred expenses.

Balance Sheet: Also known as the statement of financial position, the balance sheet presents a snapshot of a
company's financial condition at a specific point in time. It lists the company's assets, liabilities, and shareholders'
equity, providing an overview of what the company owns and owes.

Cash Flow Statement: This statement reports the cash inflows and outflows from operating, investing, and
financing activities during a specific period. It helps assess a company's liquidity and ability to generate cash to
meet its obligations and fund its operations.

Statement of Stockholders' Equity (Statement of Changes in Equity): This statement shows changes in
shareholders' equity over a specific period, including contributions from shareholders, net income, dividends, and
other adjustments.
Financial statements play a crucial role in assessing a company's financial health
for several reasons:

Decision-making: Investors, creditors, and other stakeholders use financial

statements to make informed decisions about investing in or lending to a
company. The information provided in financial statements helps assess the
company's profitability, liquidity, solvency, and overall financial performance.

Performance Evaluation: Financial statements enable stakeholders to evaluate a

company's financial performance over time and compare it to industry
benchmarks and competitors. This analysis helps identify trends, strengths,
weaknesses, and areas for improvement.

Transparency and Accountability: Financial statements promote transparency

and accountability by providing a clear and standardized representation of a
company's financial position and performance. They allow stakeholders to hold
management accountable for their stewardship of the company's resources.

Compliance and Regulation: Companies are required by law to prepare and

disclose financial statements in accordance with accounting standards and
regulatory requirements. Financial statements help ensure compliance with these
standards and provide transparency to regulators and government authorities.
Income Statement

• The purpose of the income statement, also known as the

profit and loss statement (P&L), is to provide a summary
of a company's financial performance over a specific
period, typically a month, quarter, or year. Its primary
focus is on showing the company's profitability by
detailing the revenues earned and the expenses incurred
during that period.
 Revenue Recognition: The income statement

Key begins with the company's revenues, which are the

amounts earned from selling goods or providing
services to customers. Revenue recognition

Purpose of principles dictate when and how revenue should

be recognized based on the completion of services
or the delivery of goods.

Income
Statement
Expense Identification: Following the revenues,
the income statement lists various expenses
incurred by the company in generating those
revenues. These expenses may include costs of
goods sold (COGS), operating expenses, interest
expenses, taxes, and other non-operating expenses.

Profitability Assessment: By subtracting total

expenses from total revenues, the income
statement calculates the company's net income (or
net loss) for the period. Net income represents the
company's profit after accounting for all expenses.
A positive net income indicates profitability, while
a negative net income signifies a loss.
Performance Evaluation: The income statement enables stakeholders, such
as investors, creditors, and management, to evaluate the company's financial
performance over time. It provides insights into the company's ability to
generate profits from its core operations and manage its expenses effectively.

Decision Making: Investors and creditors use the income statement to assess
the company's profitability and financial health when making investment or
lending decisions. Management relies on the income statement to identify
areas for cost control, revenue enhancement, and overall performance
improvement.

Comparison and Analysis: The income statement facilitates comparison and

analysis of financial performance across different periods (e.g., year-over-year
or quarter-over-quarter) and against industry benchmarks and competitors.
This analysis helps identify trends, patterns, and areas of strength or weakness
within the company.
 Revenue:

Key • Revenue, also referred to as sales or sales revenue, represents the total amount of money earned by a company
from its primary business activities, such as selling goods or providing services to customers.
• Revenue is recognized when goods are delivered or services are rendered, and the company has substantially

Components fulfilled its obligations to the customer.

• Revenue may include sales revenue from products, fees for services rendered, interest income, rental income,
and other sources of income related to the company's core operations.

of Income
Statement
Expenses:

• Expenses represent the costs incurred by a company in generating revenues and operating its business. These
costs are subtracted from revenues to calculate the company's net income.
• Common types of expenses found on the income statement include:
• Cost of Goods Sold (COGS): This includes the direct costs associated with producing or purchasing the goods
sold by the company. For example, for a retail company, COGS includes the cost of inventory.
• Operating Expenses: These are the day-to-day expenses incurred in running the business, such as salaries and
wages, rent, utilities, marketing expenses, administrative expenses, and depreciation.
• Interest Expense: This represents the interest paid on loans or debt obligations.
• Income Taxes: This represents the company's tax obligations based on its taxable income.
• Other Expenses: These may include non-operating expenses such as losses on investments, impairment
charges, or extraordinary expenses.

Net Income:

• Net income, also known as net profit or the bottom line, is the amount of profit remaining after deducting all
expenses from total revenues.
• It represents the company's profitability over the specified period.
• Net income is a crucial metric for assessing the financial performance and profitability of a company. A
positive net income indicates that the company has generated profits, while a negative net income indicates a
loss.
• Net income is often used by investors, creditors, and management as a key indicator of a company's financial
health and performance.
Example Of Income Statement
Balance Sheet
• The balance sheet is a fundamental financial statement that offers a snapshot of
a company's financial position at a specific point in time. It presents a
summary of the company's assets, liabilities, and shareholders' equity,
providing stakeholders with valuable insights into its financial health and
stability.
• At its core, the balance sheet follows the fundamental accounting equation:
• Assets = Liabilities + Shareholders' Equity
• This equation illustrates the relationship between what a company owns (its
assets), what it owes (its liabilities), and the owners' residual interest in the
company (shareholders' equity). By adhering to this equation, the balance sheet
ensures that a company's financial records are accurate and balanced.
• The balance sheet is often likened to a financial "snapshot" as it captures the
company's financial position at a specific moment, typically at the end of a
reporting period such as a quarter or fiscal year. This static representation
allows stakeholders, including investors, creditors, and management, to assess
the company's liquidity, solvency, and overall financial stability.
Key Purpose of Balance Sheet
Financial Position • Provides a snapshot of the company's financial position at a specific point in time.
• Presents a summary of the company's assets, liabilities, and shareholders' equity, allowing
Assessment: stakeholders to understand what the company owns and owes.

• Helps assess the company's liquidity by comparing its current assets to its current liabilities.
Liquidity Analysis: • Indicates whether the company has sufficient short-term assets to cover its short-term
obligations and meet its liquidity needs.

Solvency • Assists in evaluating the company's ability to meet its long-term financial obligations.
• Compares total assets to total liabilities to determine the company's solvency and financial
Evaluation: stability.

Capital Structure • Facilitates analysis of the company's capital structure by presenting the composition of its
shareholders' equity and liabilities.
• Allows stakeholders to assess the company's leverage and the balance between debt and equity
Analysis: financing.

Investment Decision • Helps investors and creditors make informed investment and lending decisions.
• Provides insights into the company's financial health, stability, and growth potential.
Making:
 Key Components of Balance Sheet

Assets: Liabilities: Shareholders' Equity: Current Assets:

Represents the resources owned or Represents the company's Represents the owners' residual Assets expected to be converted
controlled by the company that obligations or debts to external interest in the company's assets into cash or used up within one
have economic value. parties. after deducting its liabilities. year or the operating cycle,
Includes both current and non- Like assets, liabilities are classified Comprises various components, whichever is longer.
current assets. into current and non-current including common stock, Includes cash and cash equivalents,
Current assets are expected to be categories. additional paid-in capital (APIC), accounts receivable, inventory,
converted into cash or used up Current liabilities are obligations retained earnings, and treasury short-term investments, and
within one year, while non-current due within one year, while non- stock. prepaid expenses.
assets are not expected to be current liabilities are obligations Common stock represents the
converted into cash within one not due within one year. capital raised by issuing common
year. Examples of liabilities include shares to investors, while retained
Examples of assets include cash, accounts payable, short-term earnings represent the accumulated
accounts receivable, inventory, borrowings, accrued expenses, profits or losses retained by the
property, plant, equipment (PP&E), long-term debt, and deferred tax company after paying dividends.
intangible assets, and investments. liabilities.
Non-Current Assets: Current Liabilities: Non-Current Liabilities: Shareholders' Equity
Components:
Assets not expected to be converted Obligations due within one year or the Obligations not due within the next Common Stock: Represents the par
into cash or used up within one year. operating cycle, whichever is longer. year. value of common shares issued by the
Includes property, plant, equipment Includes accounts payable, short-term Includes long-term debt, deferred tax company.
(PP&E), intangible assets, long-term borrowings, accrued expenses, and liabilities, pension obligations, and Additional Paid-in Capital (APIC):
investments, and deferred tax assets. current portion of long-term debt. long-term lease liabilities. Represents the excess amount received
from issuing shares over their par
value.
Retained Earnings: Represents the
accumulated profits or losses retained
by the company after paying dividends.
Treasury Stock: Represents shares
repurchased by the company from
shareholders.
Example of Balance Sheet
Cash Flow Statement

• The cash flow statement is a financial

statement that provides a summary of a
company's cash inflows and outflows
over a specific period, typically a fiscal
quarter or year. It tracks the sources and
uses of cash within a business, focusing
on cash transactions rather than accrual-
based accounting principles used in the
income statement and balance sheet.
Key Purpose of Cash Flow Statement

Cash Flow Tracking: • Tracks the sources and uses of cash within a business over a specific period.

Operating Activities • Provides insights into the cash generated or used in the company's core business operations.
• Helps assess the company's ability to generate cash from its primary activities.
Analysis:

Investing Activities • Helps understand how the company is investing its cash resources to support its growth and strategic objectives.
• Provides information on cash flows related to the purchase or sale of long-term assets.
Evaluation:

Financing Activities • Offers insights into how the company raises capital and manages its debt and equity financing.
• Includes cash transactions related to issuing or repurchasing shares, borrowing or repaying debt, and paying
Assessment: dividends.

• Assists in evaluating the company's liquidity by analyzing cash flows from operating activities and comparing them
Liquidity Analysis: to its cash outflows.
• Provides information on the company's ability to meet its short-term obligations.
Key Components of Cash Flow
Statement
Operating Activities: Investing Activities: Financing Activities: Net Cash Flow:
• Cash inflows and • Cash flows related to • Cash transactions • The sum of cash flows
outflows from the the purchase or sale of related to the company's from operating,
company's core business long-term assets. financing sources. investing, and financing
operations. • Includes cash spent on • Includes cash raised activities.
• Includes cash received acquiring property, from issuing or • Represents the net
from customers, cash plant, equipment repurchasing shares, change in cash and cash
paid to suppliers and (PP&E), investments in borrowing or repaying equivalents during the
employees, interest securities, and proceeds debt, and paying reporting period.
received, and income from the sale of these dividends to
taxes paid. assets. shareholders.
• Represents the • Provides insights into • Provides insights into
company's ability to how the company is how the company raises
generate cash from its investing its cash capital and manages its
primary activities. resources to support its debt and equity
growth and strategic financing.
objectives.
Beginning Cash The amount of cash and cash equivalents at the beginning of the reporting period.
Balance: Serves as the starting point for calculating the net change in cash.

Ending Cash The amount of cash and cash equivalents at the end of the reporting period.
Balance: Represents the final cash position after accounting for cash inflows and outflows during the period.

Additional disclosures and details provided to enhance the understanding of cash flows.
Supplementary
Includes non-cash transactions, such as the issuance of shares for acquiring assets, and significant cash
Information: transactions not classified in operating, investing, or financing activities.

Reconciles the net change in cash to the change in the company's cash and cash equivalents reported on the
Reconciliation: balance sheet.
Ensures consistency between the cash flow statement and the balance sheet.
Example of Cash Flow Statement
 Conclusion
• In conclusion, financial statements play a pivotal role in providing stakeholders with essential
information about a company's financial health, performance, and position. Through the
analysis of the income statement, balance sheet, and cash flow statement, investors, creditors,
and management gain valuable insights into various aspects of the company's operations and
finances.

• The income statement allows stakeholders to assess the company's profitability and operational
efficiency by analyzing its revenues, expenses, and net income. It provides a snapshot of the
company's performance over a specific period, highlighting its ability to generate profits from
its core activities.

• The balance sheet offers a comprehensive view of the company's financial position by
presenting its assets, liabilities, and shareholders' equity. It helps stakeholders evaluate the
company's liquidity, solvency, and capital structure, providing insights into its ability to meet
short-term and long-term obligations.

• The cash flow statement tracks the sources and uses of cash within the company, focusing on
cash flows from operating, investing, and financing activities. It aids in assessing the
company's liquidity, cash management practices, and ability to generate cash to support its
operations and growth initiatives.

• In conclusion, financial statements serve as essential tools for decision-making, performance

evaluation, and financial analysis. By understanding and interpreting these statements,
stakeholders can make informed decisions about investing in, lending to, or managing the
company, ultimately contributing to its long-term success and sustainability.
Thank You!