why is financial statements important essay

Financial Statements Importance Essay

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Financial control is “the control of financial resources as they flow out or into the organization” (Gupta 27). Financial control is necessary because it ensures an organization is on the right path towards its business goals. As well, financial control is necessary because it helps managers take “corrective” measures whenever necessary. The basic information used for financial control includes budgets, financial audits, and ratio analyses. Financial statements are essential because they provide the best information for proper financial control. Managers use budgets to measure performance and “control standards” across different departments in an organization (Gupta 64). A budget helps leaders coordinate the available projects and resources.

This makes it easier to evaluate the financial performance of different units in an organization. The other “information” used for financial control is “ratio analysis.” This assesses the financial position of a business organization. Some widely used financial ratios include debt and liquidity. Managers also use audits for financial control. According to Gupta (79), “auditing is necessary because it verifies the accuracy of financial statements and the accounting procedures used.” Audits are necessary because they ensure the financial position of a business is under control. A financial statement also presents the income of an organization within a specific period. This document ensures the organization’s financial position is carefully controlled.

A financial statement is an important “profile” of a business organization. The profile gives a wider picture of an organization’s financial position. That being the case, financial statements play a significant role in any given business or organization. The two main financial statements include an income statement and a balance sheet. A balance sheet (also called financial position statement) is a detailed summary of an organization’s financial “balances” (Pfeiffer and Dyckman 21).

A balance sheet gives a detailed “snapshot profile” of an organization’s financial position. It lists the assets, equities, and liabilities of the organization “as at the end of the business year.” Managers can use the statement to examine the existing difference between the company’s assets and liabilities. The document makes it easier for the manager to understand the “net worth” of a business. This is what determines the financial position of the business. An income statement is a financial document summarizing the actual performance of an organization within a specified period (Pfeiffer and Dyckman 28). A business manager can use the document to establish whether the organization has recorded any losses or profits during its financial year. That being the case, the statement helps the manager examine the financial performance of the organization.

More often than not, the performance of organizations in the same industry is more or less the same. That being the case, a manager can compare an organization’s performance with the existing industry norms. The approach will make it easier to understand the major factors affecting the performance of the major businesses in the industry. After understanding the existing industry norms, the manager will understand the specific factors influencing the performance of different organizations in the industry (Gupta 72).

The identified norms will help the manager have a wider picture of the opportunities, challenges, forces, and barriers that affect the respective companies in the industry. After recording such norms in a specific industry, the manager will then evaluate and understand the current performance of the organization. The performance of an organization, therefore, depends on the profitability or attractiveness of its industry (Pfeiffer and Dyckman 89). This explains how a manager can compare an organization’s performance with the industry norms to understand its current performance.

Works Cited

Gupta, Ambrish. Financial Accounting for Management: An Analytical Perspective. New Delhi: Magic International Pvt. Limited, 2009. Print.

Pfeiffer, Glenn, and R. Dyckman. Financial Accounting. Cambridge: Cambridge Business Publishers, 2008. Print.

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How & Why Managers Use Financial Statements

• 16 Jun 2020

Becoming an effective manager requires continuously honing and improving your management skills . This could mean exchanging resources with others in your network, reading books or publications, or taking online courses .

Not to be overlooked are the management tools you have at your immediate disposal: your business’s financial statements. Financial statements can be used by managers to track performance, budgets, and other metrics, and as tools to make decisions , motivate teams, and maintain a big-picture mindset.

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3 Financial Statements Used by Managers

There are three key financial statements managers should know how to read and analyze : the balance sheet, income statement, and cash flow statement.

The balance sheet provides a snapshot of a company’s financial health for a given period. It lists the assets, liabilities, and equity line by line for the period so that stakeholders can understand the breakdown.

The income statement , also known as the profit and loss statement, or P&L, gives an overview of the income and expenses during a set period. Typically presented annually or quarterly, the income statement allows businesses to compare trends in income and expenses over time.

Finally, the cash flow statement details the inflows and outflows of cash for a specific period. Broken into operating activities, investing activities, and financing activities, the cash flow statement demonstrates the business’s ability to operate in both the short and long term.

When analyzed together, these statements provide a holistic view of the financial health of your organization. They can be used to learn from previous pitfalls and successes as you strategize for the future. Here are six ways you can leverage your company’s financial statements to excel as a manager.

Related: How to Prepare a Balance Sheet: 5 Steps for Beginners

6 Ways Managers Can Use Financial Statements

1. measure impact.

As a manager, it’s important to have a method for tracking the impact your efforts have on your company’s bottom line. Take a look at your company’s income statement, and note the direct expenses related to the revenue for that period.

Perhaps you purchased a piece of software, requested more ad spend, or hired a specialist for a big project. Did those expenses result in the net income you were targeting? Moving forward, you can learn from your mistakes and double down on investments that paid off.

2. Determine Budgets

Financial statements are also useful when managing and planning budgets . Because the financial landscape is ever-changing, John Wong, HBS Online’s Senior Associate Director of Financial Planning and Analysis, cautions against using previous financial statements as a starting place for future budgets.

“Historical data is essential to building a budget, but should be used as a reference point and not necessarily a starting point,” he writes in a previous blog post .

An understanding of your company’s financial health and history is necessary when budgeting, and should be paired with a forward-thinking mindset.

3. Cut Unnecessary Costs

Being able to see your company’s expenses line by line on both the income and cash flow statements can highlight areas where it’s possible to cut costs. Maybe you’ve been paying a monthly subscription for a service you no longer need, or your team outings could be scaled back in favor of more inexpensive activities. Seeing a list of every expense and how it impacts your company’s net income can be an eye-opening chance to save money and reallocate spend where it’s needed most.

4. Think Big-Picture

Keeping the broader health of your organization in mind is vital when managing your team . Analyzing the balance sheet, income statement, and cash flow statement can allow you to understand the ins and outs of your company’s finances and give you bigger-picture clarity to guide your goal-setting and decision-making processes .

Related: 5 Ways Managers Can Use Finance to Make Better Decisions

5. Align Across Departments

Your company’s financial statements can be used to ensure multiple departments are on the same page. When managers from each department have analyzed the statements, discussions about goals and budgeting can center on a shared understanding of the organization’s current financial health, and offer perspective into other managers’ goals and motivations.

6. Drive Team Motivation

Consider using your company’s financial statements as tools to motivate and engage your team . The income statement can show how your employees’ projects positively impacted the company’s revenue, which could boost their performance and drive.

When setting team goals, leverage financial statements to provide context for why specific benchmarks were targeted and the thought process behind your plans for reaching them. Instill in employees your same big-picture mindset and the knowledge that their efforts make a tangible difference to the company.

Become a Finance-Driven Manager

Your organization’s financial statements are valuable assets you can use to make strategic decisions and manage your team. If you’re unsure of where to begin, brushing up on your financial literacy , networking with finance professionals, or taking a finance course are great places to start. Bolstering your financial knowledge can enable you to make the best use of the resources available to you and become a finance-driven manager.

Are you interested in using finance to become a better manager? Explore our six-week online course Leading with Finance and other finance and accounting courses and discover how you can gain the skills and confidence to use the fundamentals of finance in your career.

About the Author

The Importance of Financial Statements: A Comprehensive Guide

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Cash Flow Inventory

• Last Updated: 21 st Jun 2023
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• Financial Accounting

Editorial Note: We earn a commission from partner links on Cash Flow Inventory. Commissions do not affect our editors' opinions or evaluations.

Editorial Note: We are an inventory management software provider. While some of our blog posts may highlight features of our own product, we strive to provide unbiased and informative content that benefits all readers.

In today’s business landscape , understanding the financial health of a company is crucial for investors, entrepreneurs, and managers alike. Financial statements provide a window into a company’s financial activities and performance, allowing stakeholders to assess its financial health and earnings potential.

In this comprehensive guide , we will explore the basics of financial statements, including their types, purpose, and how to interpret them effectively.

Introduction to Financial Statements

Financial statements are formal records that present the financial activities and position of a business, individual, or other entity. They provide relevant financial information in a structured and easily understandable manner. Typically, financial statements consist of four primary statements: the income statement, the balance sheet, the cash flow statement, and the statement of changes in equity. These statements are accompanied by a management discussion and analysis, which offers additional insights into the financial performance and position of the entity.

Financial statements play a crucial role in assessing the financial health and performance of a company. They provide valuable information to stakeholders such as investors, lenders, and managers, helping them make informed decisions about investment opportunities, creditworthiness, and strategic planning.

In the following sections, we will delve into the specific details of each financial statement, exploring their components, interpretation, and significance in financial analysis.

The Income Statement

The income statement, also known as the profit and loss statement, reveals a company’s financial performance by presenting revenues, expenses, and net income. It helps investors and stakeholders assess profitability, cost management, and revenue generation through metrics like gross profit margin, operating margin, net profit margin, and earnings per share.

– Definition and Purpose

The income statement, also known as the profit and loss statement, showcases a company’s financial performance over a specific period. It presents the revenues generated and the expenses incurred, ultimately revealing the net income or loss of the business.

The primary purpose of the income statement is to provide insights into a company’s ability to generate profits and assess its operational efficiency. Investors and stakeholders rely on this statement to evaluate the company’s revenue streams, cost structure, and overall profitability.

– Components of an Income Statement

The income statement comprises several key components that outline the financial performance of a company. These components include:

• Revenue: This section highlights the total income generated from the company’s primary operations, such as sales of goods or services.
• Cost of Goods Sold (COGS): COGS represents the direct expenses incurred in producing the goods or services sold by the company. It includes costs such as raw materials, labor, and manufacturing overheads.
• Gross Profit: Gross profit is calculated by subtracting the COGS from the revenue. It reflects the profitability of the company’s core operations.
• Operating Expenses: Operating expenses include all costs incurred in running the business, such as salaries, rent, utilities, marketing expenses, and administrative costs.
• Operating Income: Operating income, also known as operating profit or earnings before interest and taxes (EBIT), is derived by subtracting the operating expenses from the gross profit. It represents the profitability of the company’s core operations before accounting for interest and taxes.
• Other Income and Expenses: This section includes any non-operating income or expenses, such as gains or losses from the sale of assets, interest income, or interest expenses.
• Net Income: Net income, also referred to as net profit or the bottom line, is the final figure obtained by subtracting the total expenses, including non-operating expenses, from the operating income. It represents the company’s overall profitability after accounting for all costs and expenses.

– Interpreting the Income Statement

Analyzing the income statement provides valuable insights into a company’s revenue generation, cost management, and profitability. Several key metrics and ratios can be derived from the income statement to assess the company’s financial performance, including:

• Gross Profit Margin: Gross profit margin is calculated by dividing the gross profit by the revenue and multiplying by 100. It indicates the percentage of revenue remaining after accounting for the direct costs of producing goods or services. A higher gross profit margin signifies better cost control and pricing strategies.
• Operating Margin: Operating margin is obtained by dividing the operating income by the revenue and multiplying by 100. It reflects the profitability of the company’s core operations, excluding non-operating expenses. A higher operating margin indicates efficient cost management and strong operational performance.
• Net Profit Margin: Net profit margin is calculated by dividing the net income by the revenue and multiplying by 100. It represents the percentage of revenue that translates into net profit after accounting for all expenses. A higher net profit margin indicates effective cost control and overall profitability.
• Earnings Per Share (EPS): EPS is obtained by dividing the net income by the weighted average number of outstanding shares. It provides insights into the company’s profitability on a per-share basis and is often used to compare the earnings potential of different companies.

By analyzing these metrics and ratios, investors and stakeholders can gain a deeper understanding of a company’s financial performance, profitability, and ability to generate sustainable earnings.

The Balance Sheet

The balance sheet provides a snapshot of a company’s financial position, revealing its assets, liabilities, and shareholders’ equity. It helps stakeholders assess financial stability, leverage, and net worth through metrics like current ratio, debt-to-equity ratio, return on assets (ROA), and return on equity (ROE).

The balance sheet is a snapshot of a company’s financial position at a specific point in time. It provides a detailed overview of the company’s assets, liabilities, and shareholders’ equity. The balance sheet is a crucial financial statement as it reveals the company’s financial health, liquidity, and overall value.

The primary purpose of the balance sheet is to present a clear picture of what a company owns (assets), what it owes (liabilities), and the residual value available to shareholders (shareholders’ equity). It provides stakeholders with valuable insights into the company’s financial stability, leverage, and net worth.

– Components of a Balance Sheet

The balance sheet consists of three key components: assets, liabilities, and shareholders’ equity. These components are further divided into subcategories to provide a detailed breakdown of the company’s financial position.

• Current Assets: Current assets include cash and cash equivalents, accounts receivable, inventory, and other assets that are expected to be converted into cash or used up within one year.
• Non-Current Assets: Non-current assets, also known as long-term assets, include property, plant, and equipment (PP&E), intangible assets, long-term investments, and other assets that are not expected to be converted into cash within one year.
• Current Liabilities: Current liabilities include accounts payable, short-term loans, accrued expenses, and other obligations that are expected to be settled within one year.
• Non-Current Liabilities: Non-current liabilities, also known as long-term liabilities, include long-term debt, deferred tax liabilities, and other obligations that are not expected to be settled within one year.
• Shareholders’ Equity: Shareholders’ equity represents the residual interest in the company’s assets after deducting liabilities. It includes the initial investment made by shareholders and retained earnings, which are the accumulated profits or losses that have not been distributed to shareholders as dividends.

– Interpreting the Balance Sheet

Analyzing the balance sheet provides valuable insights into a company’s financial stability, liquidity, and overall value. Several key ratios and metrics can be derived from the balance sheet to assess the company’s financial position, including:

• Current Ratio: The current ratio is obtained by dividing current assets by current liabilities. It measures the company’s ability to meet its short-term obligations using its current assets. A higher current ratio indicates better liquidity and financial health.
• Debt-to-Equity Ratio: The debt-to-equity ratio is calculated by dividing total debt by shareholders’ equity. It reflects the company’s leverage or the proportion of debt used to finance its assets. A higher debt-to-equity ratio indicates higher financial risk and reliance on debt financing.
• Return on Assets (ROA): ROA is obtained by dividing net income by total assets and multiplying by 100. It measures the company’s ability to generate profits from its assets. A higher ROA indicates better asset utilization and profitability.
• Return on Equity (ROE): ROE is calculated by dividing net income by shareholders’ equity and multiplying by 100. It represents the return generated on shareholders’ investments. A higher ROE signifies better profitability and efficiency in utilizing shareholders’ equity.

By analyzing these ratios and metrics, investors and stakeholders can gain insights into a company’s financial stability, leverage, and ability to generate returns for its shareholders.

The Cash Flow Statement

The cash flow statement tracks cash inflows and outflows, providing insights into a company’s liquidity and ability to meet financial obligations. It categorizes cash flows into operating, investing, and financing activities, and metrics like operating cash flow, free cash flow, cash conversion cycle, and dividend payout ratio help assess cash flow position and financial health.

The cash flow statement, also known as the statement of cash flows, provides information about the cash inflows and outflows of a company during a specific period. It focuses on the sources and uses of cash, providing insights into a company’s liquidity, cash position, and ability to meet its financial obligations.

The primary purpose of the cash flow statement is to track the movement of cash within a company. It categorizes cash flows into three main activities: operating activities, investing activities, and financing activities. By analyzing the cash flow statement, stakeholders can evaluate a company’s cash-generating capabilities, cash requirements, and overall financial health.

– Components of a Cash Flow Statement

The cash flow statement consists of three main sections, each representing a different category of cash flow:

• Operating Activities: This section reflects the cash flows resulting from the company’s core operations, such as cash received from customers and cash paid to suppliers and employees. It includes items such as net income, depreciation and amortization, changes in working capital, and other operating cash flows.
• Investing Activities: This section represents cash flows related to the acquisition or sale of long-term assets, investments, or other non-operating activities. It includes items such as cash spent on property, plant, and equipment, proceeds from the sale of investments, and other investing cash flows.
• Financing Activities: This section reflects cash flows related to the company’s financing activities, such as issuing or repaying debt, issuing or buying back shares, and paying dividends. It includes items such as proceeds from issuing debt or equity, repayments of debt, and dividends paid.

– Interpreting the Cash Flow Statement

Analyzing the cash flow statement provides insights into a company’s cash-generating capabilities, liquidity, and overall financial health. Several key metrics and ratios can be derived from the cash flow statement to assess the company’s cash flow position, including:

• Operating Cash Flow (OCF): OCF represents the cash generated or consumed by the company’s core operations. It is calculated by subtracting cash paid for operating expenses from cash received from operating activities. Positive OCF indicates that the company is generating cash from its core operations.
• Free Cash Flow (FCF): FCF represents the cash available to the company after deducting capital expenditures from operating cash flow. It reflects the cash that can be used for growth, debt repayment, or distribution to shareholders.
• Cash Conversion Cycle (CCC): CCC measures the number of days it takes for a company to convert its investments in inventory and accounts receivable into cash. A shorter CCC indicates better cash flow management and efficiency in converting assets into cash.
• Dividend Payout Ratio: The dividend payout ratio is calculated by dividing dividends paid to shareholders by net income and multiplying by 100. It represents the proportion of earnings distributed to shareholders as dividends. A higher dividend payout ratio indicates a greater commitment to distributing profits to shareholders.

By analyzing these ratios and metrics, investors and stakeholders can gain insights into a company’s cash flow position, liquidity, and ability to meet its financial obligations.

The Statement of Changes in Equity

The statement of changes in equity tracks the changes in a company’s shareholders’ equity over a period, revealing how profits were utilized, capital was raised, and earnings were distributed. It helps stakeholders understand the company’s commitment to reinvestment, shareholder returns, and equity transactions such as buybacks or issuances.

The statement of changes in equity, also known as the statement of owner’s equity or statement of retained earnings, tracks the changes in a company’s shareholders’ equity over a specific period. It provides insights into the sources and uses of equity, including retained earnings, capital contributions, dividends, and other equity transactions.

The primary purpose of the statement of changes in equity is to disclose the changes in the company’s net worth attributable to shareholders. It helps stakeholders understand how the company has utilized its profits, raised capital, and distributed earnings to shareholders.

– Components of a Statement of Changes in Equity

The statement of changes in equity typically includes the following components:

• Beginning Shareholders’ Equity: This represents the total equity at the beginning of the period.
• N et Income: Net income from the income statement is added to the beginning shareholders’ equity.
• Capital Contributions: Any additional capital contributed by shareholders during the period is included.
• Dividends: Dividends paid to shareholders are subtracted from the beginning shareholders’ equity.
• Other Equity Transactions: This section includes any other equity-related transactions, such as share buybacks or stock issuances.

– Interpreting the Statement of Changes in Equity

Analyzing the statement of changes in equity provides insights into how a company has utilized its profits, raised capital, and distributed earnings to shareholders. By examining the components of the statement, stakeholders can assess the company’s commitment to reinvesting profits, returning capital to shareholders, or issuing new equity.

Additional Financial Statement Considerations

Supplementary notes in financial statements provide explanations, details, and disclosures to enhance understanding and provide context for stakeholders. The presentation of financial statements follows accounting frameworks for external users, while internal financial statements may have a customized format. Auditing provides assurance on the accuracy and compliance of financial statements, but it is not mandatory for all companies.

– Supplementary Notes

When financial statements are issued to external parties, supplementary notes are often included. These notes provide explanations of various activities, additional details on specific accounts, and other disclosures required by accounting frameworks such as GAAP or IFRS. Supplementary notes enhance the understanding of the financial statements and provide additional context for stakeholders.

– Presentation of Financial Statements

The presentation of financial statements may vary depending on the intended audience. When financial statements are issued to external users such as investors or lenders, they need to be formatted in accordance with accounting frameworks. These frameworks provide guidelines for the structure and content of financial statements, ensuring consistency and comparability among different companies.

On the other hand, financial statements prepared for internal use may follow a format that aligns with the company’s specific requirements. The level of detail and additional information included in internal financial statements may differ from those presented to external parties.

– Auditing and Assurance

Publicly traded companies are often required to have their financial statements audited by independent auditors. An audit provides assurance to stakeholders that the financial statements are prepared in accordance with applicable accounting standards and are free from material misstatements. The audit report, issued by the independent auditor, provides an opinion on the fairness and accuracy of the financial statements.

Audited financial statements carry greater credibility and reliability, instilling confidence in investors and stakeholders. However, not all companies are required to undergo an audit, especially smaller businesses or those with limited external financing needs.

Using Financial Statements for Analysis and Decision Making

Financial statements serve as valuable tools for analysis and decision making. By analyzing the information presented in financial statements, stakeholders can gain insights into a company’s financial performance, profitability, and overall financial health. Here are some key methods and techniques for using financial statements effectively:

– Key Financial Ratios

Financial ratios are calculated using data from financial statements and provide insights into various aspects of a company’s financial performance. These ratios help stakeholders compare and evaluate companies within the same industry or across different sectors. Some important financial ratios include:

• Liquidity Ratios: Liquidity ratios assess a company’s ability to meet its short-term obligations. Examples include the current ratio and the quick ratio.
• Solvency Ratios: Solvency ratios measure a company’s ability to meet its long-term obligations. Examples include the debt-to-equity ratio and the interest coverage ratio.
• Profitability Ratios: Profitability ratios evaluate a company’s ability to generate profits from its operations. Examples include the return on assets (ROA) and the return on equity (ROE).
• Efficiency Ratios: Efficiency ratios measure how effectively a company utilizes its assets and resources. Examples include the inventory turnover ratio and the days sales outstanding (DSO) ratio.

By analyzing these ratios, stakeholders can gain insights into a company’s financial performance, efficiency, and overall profitability.

– Trend Analysis

Trend analysis involves comparing financial statement data over multiple periods to identify patterns and trends. By examining the changes in key financial metrics over time, stakeholders can assess a company’s performance, growth trajectory, and potential risks. Trend analysis helps identify areas of improvement or concern and provides a basis for forecasting future performance.

– Comparative Analysis

Comparative analysis involves benchmarking a company’s financial performance against its competitors or industry peers. By comparing key financial ratios and metrics, stakeholders can evaluate a company’s relative position, strengths, and weaknesses. Comparative analysis helps identify industry trends, competitive advantages, and areas for improvement.

Limitations of Financial Statements

While financial statements provide valuable insights into a company’s financial performance and position, they have certain limitations that stakeholders should be aware of. These limitations include:

– Incomplete Information

Financial statements present a summary of the company’s financial activities and position but may not capture every detail or transaction. Certain items, such as contingent liabilities or off-balance sheet arrangements, may not be fully disclosed in the financial statements. Stakeholders should consider additional sources of information and disclosures to gain a comprehensive understanding of the company’s financial health.

– Subjectivity and Estimates

Financial statements often involve subjective judgments and estimates, especially when valuing assets, determining allowances for doubtful accounts, or recognizing revenue. These estimates may vary among different companies or even within the same company over time. Stakeholders should exercise caution and consider the potential impact of these estimates on the financial statements.

– Timing and Reporting Constraints

Financial statements are prepared at specific intervals, such as monthly, quarterly, or annually. They may not reflect the most up-to-date information or capture recent events that could significantly impact the company’s financial position. Stakeholders should consider the timeliness of the financial statements and supplement their analysis with current information when necessary.

Importance of Financial Statements for Different Stakeholders

Financial statements play a critical role in decision making and evaluation for various stakeholders, including investors, lenders, and managers.

– Investors and Shareholders

Investors and shareholders rely on financial statements to assess the financial health, profitability, and growth potential of a company. They use financial statements to make informed investment decisions, evaluate the company’s performance relative to competitors, and estimate the value of their investments. Financial statements also provide insights into the company’s dividend-paying capacity and potential for future capital appreciation.

– Lenders and Creditors

Lenders and creditors use financial statements to evaluate a company’s creditworthiness and ability to repay its debts. They assess the company’s liquidity, leverage, and financial stability to determine the risk associated with extending credit or providing loans. Financial statements help lenders and creditors make informed decisions about interest rates, loan terms, and credit limits.

– Managers and Decision Makers

Managers and decision-makers within a company rely on financial statements to monitor the company’s financial performance, assess the effectiveness of strategic initiatives, and make informed decisions. Financial statements provide insights into revenue trends, cost structures, and profitability, allowing managers to identify areas for improvement, allocate resources effectively, and evaluate the success of business strategies.

Financial statements are essential tools for assessing the financial health, performance, and value of a company. They provide valuable insights into a company’s revenue generation, cost management, liquidity, and overall profitability. By analyzing the income statement, balance sheet, cash flow statement, and statement of changes in equity, stakeholders can make informed investment decisions, evaluate creditworthiness, and assess the financial stability of a company.

It is important to note that financial statements have limitations and should be complemented with additional information and analysis. Trend analysis, comparative analysis, and key financial ratios are valuable techniques for evaluating a company’s financial performance and identifying areas of improvement.

To make effective use of financial statements, stakeholders should develop a good understanding of their components, interpretation, and the key metrics derived from them. By doing so, they can navigate the complexities of financial information and make informed decisions that drive business success.

Led by Mohammad Ali (15+ years in inventory management software), the Cash Flow Inventory Content Team empowers SMBs with clear financial strategies. We translate complex financial concepts into clear, actionable strategies through a rigorous editorial process . Our goal is to be your trusted resource for navigating SMB finance.

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Why are financial statements important.

Your financial statements are the equivalent of an annual medical checkup. They are vital in assessing your company’s financial health. 

The 3 primary financial statements you’ll want to study closely are the:

• Income statement, also known as a profit and loss statement
• Balance sheet , also known as a statement of financial position
• Cash flow statement, or statement of cash flows

In this article, we’ll show you certain green lights ✅ and red flags ❌ you can easily tease out from each of your company’s financial statements. 

These indicators will separate a profitable company from a non-profitable one and help you make more informed decisions for your business.

Here’s What We’ll Cover:

What to Look for in Your Company’s Income Statement

What to look for in your company’s balance sheet, what to look for in your company’s cash flow statement.

Frequently Asked Questions

Note : FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice, please contact an accountant in your area.

An income statement reveals how your business has performed in a given period. That reporting period could be a month, a quarter , or a year.

By a company’s performance, we mean detailed information about the revenue it generated, the expenses it incurred, and ultimately, the net income—the net profit your business has made.

You should look for the following results in your income statement. Some of these may be the critical red flags or the reassuring green lights.

Declining Profit Margins 

A good income statement shouldn’t show declining profit margins. If your profit margins are falling, you should be concerned with the sustainability of your business. 

This may point to shrinking revenues or ballooning expenses. Either way, just ensure your finger is on the actual cause.

Non-Recurring Transactions 

A good income statement should not have significant or frequent non-recurring transactions. 

These are the “blue-moon” items—things that don’t arise from the ordinary course of business or day-to-day business operations. 

Say, for instance, you run a gym and fitness center, and on your income statement, you spot something like “other income” or “other expenses” and remember that you had a broken water pipe that flooded the locker rooms. Your insurer gave you money to make necessary repairs. 

This is an example of a non-recurring transaction. If you see these rare financial events showing up regularly on your income statement, you need to do some research into why these unexpected costs keep cropping up.

Closing Inventory Metrics 

High or increasing closing inventory levels might show that you’re struggling to sell your products. A good measure here is day sales inventory:

This shows the number of days it takes before you sell your products. Calculate this for three years and see the trend. 

If you see an increase in the time to sell your products, you’ll want to find out why. Do you need updated styles or colors? Has the product quality decreased? Are you overproducing and holding on to too much inventory?

Get clarity so you can improve your profit margins.

Also known as the statement of financial position, the balance sheet shows your company’s net worth: What it owns (company’s assets) less what it owes (company’s debts) at a particular date. 

These are the metrics you should keep your eye on in your balance sheet:

Receivable Metrics

As a rule, a good balance sheet shouldn’t show increasing receivables. If your receivables are on the rise, all factors constant, you’re failing to collect your business debts, which is a bad sign. 

To monitor your company’s revenue collection trends, you’ll want to observe what’s known as the average collection period:

You can do this for at least 3 years. If you spot an increasing trend, you should urgently recalibrate your debt collection strategy.

Liquidity Metrics

As a rule of thumb, a good balance sheet should have

• More current assets , which is the stuff your company owns and can convert into cash within a year, and 
• Low current liabilities, which are the financial obligations your business owes and which you should pay within a year.

The current ratio is the most indicative of this.

The current ratio shouldn’t dip below 1.5, which means you have $1.50 in current assets for every $1.00 in current liabilities.

A cash flow statement shows your cash outflow and inflow for an accounting period , indicating whether you have enough cash to cover your expenses. The cash flow statement breaks down cash flow into 3 categories:

• Cash flows from operations (or from operating activities )
• Cash flows from investing activities
• Cash flows from financing activities

A good cash flow statement will have cash mainly coming from operating activities. This is because other cash streams are not sustainable.

Here’s a summary of financial clues to look for on your company’s financial statements.

FAQs on Financial Statements

Are financial statements important for a company’s health.

Financial statements are like regular health screenings. If you don’t review them frequently, your business may end up with a serious and even irreversible (financial) health problem.

Should My Business Have Financial Statements?

Absolutely. Without financial statements, you wouldn’t know your company’s financial position or financial health. You also wouldn’t figure out the value of your business.

How Can I Make Financial Statements?

While there are accounting software programs you can use, such as FreshBooks, for accurate records, you’ll need someone with accounting knowledge to input your company’s financial information into it accurately. If you want to lear to prepare a financial statement follow our guide on How to Make a Financial Statement for Small Business .

How Is a Financial Statement Different from a Financial Report?

Financial statements usually refer to the “Big 3”: the income statement, the balance sheet, and the cash flow statement. 

Financial reports can refer to financial statements or other reports you may need from time to time. An example is an aged receivables report that shows each customer with an outstanding balance.

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• List of Commerce Articles
• Uses And Importance Of Financial Statements

Uses and Importance of Financial Statements

Financial statements meaning.

Financial statements are the statements that present an actual view of the financial performance of an organization at the end of a financial year.  It represents a formal record of financial transactions taking place in an organization. These statements  help the users of the information in determining the financial position, liquidity and performance of the organization.

Uses of Financial Statements

Following are some of the uses of financial statements:

• Determine the financial position of the business: The most important use of the financial statements is to provide information about the financial position of the business on a given date. This piece of information is used by various stakeholders in order to take important decisions regarding the business.
• To obtain credit: Financial statements present the picture of the business to the potential lenders and this information can be used by them to provide additional credit for business expansion or restrict the credit so as to start recovery.
• Helps investors in decision making: Financial statements contain all the essential information required by the potential investors for determining how much they want to invest in the business. It is also helpful in decision making regarding the price per share that the investors want to invest. A sound financial statement is the key to obtaining investments.
• Helps in policy making: The financial statements help the government in deciding the taxation and regulations policies based on the way the company is running its operations. The government bodies can tax a business based on the level of their income and assets.
• Useful for stock traders: Financials statements help stock traders with the knowledge of the situation the company is in and therefore adjusting their quotes accordingly.

Also Read:  Financial Statements of a Company

Importance of Financial Statement

The significance of financial statements prevails in their service to persuade the diverse interests of distinct classes of parties such as creditors, public, management, etc.,

• Importance to Management: Increase in size and intricacies of aspects influencing the business functions requires scientific and strategic access in the management of contemporary trading concerns.  The management team needs up to date, precise and methodical financial data for the intentions. Financial statements assist the management in comprehending the progress, prospects, and position of the business counterpart in the industry.
• Importance to the Shareholders: Management is detached from control in the case of companies. Shareholders cannot take part in the day-to-day business pursuits. However, the outcome of these pursuits should be disclosed to shareholders during the annual general body meeting in the form of financial statements.

Additional Reading:  Types of Financial Statements

This concludes the article on the topic of Uses and Importance of Financial Statements, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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Module 15: Financial Statement Analysis

Why it matters: financial statement analysis.

Financial statement analysis is the process of analyzing a company’s financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization and  to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing the finances.

Several techniques are commonly used as part of financial statement analysis. Three of the most important techniques include horizontal analysis, vertical analysis, and ratio analysis. Horizontal analysis compares data horizontally, by analyzing values of line items across two or more years. Vertical analysis looks at the vertical effects line items have on other parts of the business and also the business’s proportions. Ratio analysis uses important ratio metrics to calculate statistical relationships.

What we will study in this module are indicators, similar to watching the dashboard on your car.  The speedometer gives you information, as does the temperature gauge and the gas gauge.  Even if the car seems to be running fine, a sudden spike in engine temperature could give you a heads up to coming trouble, and at the garage, a mechanic may run further diagnostics using more sophisticated tools.

What you’ll be learning to do in this Module is run diagnostics on companies using the financial statements.

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Financial Analysis: Meaning, Importance & Functions

Last Updated on :  March 19, 2024

Financial analysis plays a crucial role in the success of businesses by providing insights into a company’s financial health. Financial statement analysis is a key component of financial analysis that enables businesses to evaluate their financial performance, identify areas for improvement, and make informed decisions. This write-up explores the importance of financial analysis for businesses, including how it helps with shares investment and holding, plans, decisions, and management, providing credit, and assessing a company’s financial health. The methods of financial statement analysis, including ratio analysis, trend analysis, and comparative analysis, are also discussed in this write-up. Overall, financial analysis is a critical tool for businesses to make informed decisions, allocate resources efficiently, and achieve their financial goals.

What is Financial Analysis?

Importance of Financial Statement Analysis

The importance of financial statement analysis is a critical tool for businesses to evaluate their financial health. Knowing the importance of financial statement analysis that help get information on a company’s financial performance, including its profitability, liquidity, solvency, and efficiency. Financial analysis enables businesses to identify trends, evaluate performance, and make informed decisions. Take a deep dive into the basics of financial markets to know more. 

The Shares Investment and Holding

Plans, decisions, and management, providing credit, financial analysis helps in assessing a company’s financial health, objectives of financial analysis.

The importance of financial statement analysis is to comprehend and analyse the data in financial statements in order to evaluate the firm’s profitability and financial stability and to predict its future possibilities. These are the top four objectives of financial analysis :

• Knowing the company’s existing situation 
• Reducing likelihood of fraud
• Decision making 
• Removing any discrepancies.

Methods of Financial Statement Analysis

There are several methods of financial statement analysis, including ratio analysis, trend analysis, and comparative analysis. 

Ratio Analysis:

Trend analysis:, comparative analysis:, adjustment of errors:, balance sheet:.

These methods enable businesses to gain insights into their financial performance and make informed decisions based on the data

Types of Financial Analysis

Fundamental analysis and technical analysis are the two types of financial analysis.

Fundamental Analysis

Technical analysis, importance of financial analysis in determining value of business.

There are several key financial metrics that analysts use to determine the value of a business, including revenue growth, profitability, cash flow, and return on investment. These metrics enable analysts to evaluate a company’s financial performance and assess its ability to generate future profits. Tools of financial statement analysis also enables businesses to compare their financial performance to that of their competitors and industry benchmarks. This analysis provides valuable insights into the company’s position in the market and its competitive advantage.

Ultimately, importance of financial analysis can be observed in businesses looking to determine their value and make informed decisions about investments, mergers and acquisitions, and other strategic initiatives. By conducting financial analysis, businesses can identify areas for improvement, develop strategies to improve their financial performance, and increase their overall value. 

What is a Financial Analyst

Skills Required for Financial Analyst

Database and Excel proficiency are skills needed for a financial analyst. These tools aid in data comparison, analysis, and the creation of beneficial visual presentations for clients. Excel formulas, pivot tables, and other graph kinds can all be utilised to analyse the data. Hero Vired, in partnership with edX*, offers a program in Financial Analysis from Columbia University, one of the world’s leading universities. This program is designed to master the theoretical and real-world concepts spanning the world of finance. Check the future scope of financial management to know in 2023.

Challenges in in Conducting Financial Analysis

Tools of financial statement analysis provides valuable insights into a company’s financial health, there are several challenges that businesses may face when conducting financial analysis for business. Some of these challenges in financial analysis include:

Data quality issues:

Limited access to data:, lack of expertise:, time constraints:.

Addressing these challenges requires businesses to invest in financial expertise, data management, and technology to ensure that they can conduct financial analysis effectively.

.css-12zqz9u{-webkit-user-select:none;-moz-user-select:none;-ms-user-select:none;user-select:none;width:1em;height:1em;display:inline-block;fill:currentColor;-webkit-flex-shrink:0;-ms-flex-negative:0;flex-shrink:0;-webkit-transition:fill 200ms cubic-bezier(0.4, 0, 0.2, 1) 0ms;transition:fill 200ms cubic-bezier(0.4, 0, 0.2, 1) 0ms;font-size:1.5rem;height:0.7em;} How can businesses use financial analysis for business to benchmark their performance against industry standards?

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What Is Financial Reporting & Why Is It Important?

Financial reporting is the accounting process for communicating financial information. All companies do some form of external or internal financial reporting — or both. External financial reports must conform to accounting and reporting standards, and internal reports should do so, too, though the two types of reports can look different because they serve different purposes:

• External reporting is used by company outsiders, like regulatory agencies, tax authorities, investors, lenders and trade partners, so it has more rigid requirements.
• Internal reporting is used by a company's senior management team to inform decision-making, so it can be more tailored to their specific informational needs and the company's business objectives.

Whether external or internal, the challenge for most companies is creating accurate, timely financial reporting in an efficient way. Here's what's involved and how to make it better.

What Is Financial Reporting?

Financial reporting — the communication of financial information to external and internal stakeholders — is most often achieved by the "core" financial statements: balance sheet, income statement and statement of cash flows. But it can also come in many other forms, depending on the information needs of the reader.

For example, public companies file quarterly 10-Q and annual 10-K statements with the Securities and Exchange Commission (SEC) containing extensive notes to the financial statements, supplementary schedules and the management's discussion and analysis (MD&A). For internal stakeholders, financial reporting can comprise any financial reports that management wishes to generate, such as detailed sales reports, trends and key performance indicators (KPIs).

Key Takeaways

• Financial reporting is an accounting process that communicates financial data to external and internal stakeholders, such as shareholders, lenders and senior company management.
• External financial reporting requirements are different for public and private companies, but the reports are universally required by law for tax reporting.
• The financial statements, SEC forms, annual report and MD&A are some items included in financial reporting packages.
• Integrated financial reporting software helps make financial reporting more accurate and timelier through automated processes, which have the added benefit of allowing resources to be redeployed to analysis and action.

Financial Reporting Explained

Companies of all sizes engage in some form of financial reporting, whether for compliance with outside regulatory agencies or industry custom, or for internal management decision-making. Large public companies must comply with stringent financial reporting obligations issued by the SEC; private firms might have financial reporting obligations to lenders or owners; and even small firms must do some degree of financial reporting when they prepare their tax filings.

Financial reporting is a continual process, with periodic deliverables throughout the fiscal year. Annual financial reporting happens at the end of a company's fiscal year, while interim financial reporting covers periods less than one year, typically months or quarters.

Why Is Financial Reporting Important?

Financial reporting — and its components — tells a story about a company's financial health. An important underpinning is that the information in financial reporting packages must conform to U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS); this conformity provides reliability and consistency. More specifically, financial reporting is vital for the following four purposes:

Raising capital.

A company's financial story is especially important when the company is looking to raise capital , whether through public markets, private investments or loans. Outside parties use financial reports to assess creditworthiness and the strength of the company's operations.

Reassurance.

While most financial reporting is retrospective, investors, partners and even customers/suppliers can also use it to form predictive opinions regarding future performance and viability. For example, suppliers might use a company's financial reporting to determine whether to start doing business together, based on the trajectory of the company's sales.

Financial analysis.

Financial reporting is also indispensable to internal management, serving as a foundation for analyzing operations, measuring KPIs or even calculating compensation for employees. For example, analyzing a dashboard of accounts receivable KPIs, such as day's sales outstanding, can help senior management gauge the effectiveness of the billing and collection staff, as well as predict cash flow.

Compliance and law.

Financial reporting is also important because it satisfies compliance requirements and laws. Most companies have at least one stakeholder whose continuing involvement requires periodic financial reporting. For public companies, that could be the SEC. Private companies might have a loan that requires periodic reporting of certain debt covenants. Beyond that, financial reporting is legally required by the Internal Revenue Service (IRS) — every US business's "universal stakeholder."

What Is the Purpose of Financial Reporting?

Financial reporting provides insight and transparency into a company's financial position and its operations. It's meant to give stakeholders in the company the right information, in the right amount of detail, to make better-informed decisions. This is true, whether for an external investor, a taxing agency or internal management. Good financial reporting gets different parties on the same page with a single version of the truth, and gives credibility to the company and its management. On the other hand, fraudulent or inaccurate financial reporting can torpedo a company's reputation and value.

What Is Included in Financial Reporting?

A lot of effort goes into financial reporting, derived from several different areas in a company. Financial controllers and their accounting staff are responsible for the financial reporting process in most midsize companies. In larger, public companies, the CFO and CEO are required to certify the reported information, as are external auditors, while the investor relations department handles distribution of financial reports to the public via press releases, websites, earnings calls and other external communication channels. In smaller companies, the lead staff accountant, or even the business owner, controls most of the financial reporting function, sometimes with the help of external accountants. Fortunately, requirements for small businesses are usually proportionately scaled down.

Regardless of company size, items typically included in external financial reporting are:

• Financial statements
• Notes to the financial statements
• Annual report
• SEC filings, including the 10-K and 10-Q, along with many potential others, like a prospectus, proxy statement or 8-K (for unusual events), among others.

A key point for financial reporting is timeliness. Even the most accurate and complete financial report has less value if it is out of date.

Key Types of Financial Statements and Reporting

Financial statements — standardized summaries of a company's financial profile — are the primary component of financial reporting. Each financial statement has its own focus, so it is most useful for conveying a company's story when grouped together with other statements typically included in a reporting package, such as the quarterly 10-Qs and annual 10-Ks of US public companies. The detailed accounting data underlying financial statements can be sliced and diced for internal reporting in dashboards when supported by automated accounting systems and analysis tools. Key types of financial statements and dashboards used for financial reporting are:

Income statement:

The income statement reports revenue, expenses and net income/(loss) for a fiscal period. It's often considered the most important of the three basic financial statements because it focuses on operating results. It's commonly presented in comparison to prior fiscal periods.

Balance sheet:

A balance sheet shows a company's financial position as of a certain point in time. It lists a company's assets, liabilities and equity in accordance with the accounting equation: Assets = Liabilities + Equity. The balance sheet is used to gauge a company's net worth, its overall financial strength and its ability to fund future growth.

Cash flow statement:

The cash flow statement presents a summary of how a company received and disbursed cash and cash equivalents over a stated period. It classifies sources and uses of cash into operating activity, investing activity and financing activity; strips away noncash activity (e.g., depreciation) from net income; and reveals the amount and source of a company's liquidity. By analyzing the cash flow statement, stakeholders can draw their own conclusions about a company's ability to meet its cash needs.

Financial dashboard:

Used for internal reporting, a financial dashboard is an automated, graphical representation of a company's underlying accounting and operational data. Different dashboards can be configured to show any KPI or analysis that is appropriate for a particular manager. Real-time dashboards provide the most useful internal financial reporting.

CFO dashboard:

This is an important example of a role-based financial dashboard and is one that summarizes the key data required by the most senior financial officer. Typical reporting on a CFO dashboard might be working capital KPIs, accounts receivable and accounts payable turnover, credit utilization, payroll data and budget trending, as well as summary financial statements.

Benefits of Financial Reporting

A financial reporting package serves many purposes beyond satisfying compliance and legal requirements. Key benefits of financial reporting include:

Identifying trends:

Internal analysis of a company's financial reports can help the company spot trends in the business so that it can exploit emerging opportunities and mitigate risk from potential challenges.

Managing cash flow:

Financial reporting helps a company stay on top of its cash balances and monitor cash inflows and disbursements , all of which is vital to businesses of all sizes and industries.

Enhancing working capital management:

Real-time financial reporting helps senior management calculate and balance adequate current assets in order to meet current liabilities without creating an underutilized surplus. In a similar fashion, it helps manage debt, especially debt related to revolving credit lines and other short-term credit facilities, like credit cards.

Kickstarting budgets and forecasts:

Financial reporting, especially the income statement, provides a solid foundation when creating future-looking analyses, as might be required for budgets, forecasts and pro-forma scenarios.

Optimizing operations:

You can't manage what you don't measure. Internal financial reporting is a tool for helping a business become more effective and efficient, through KPIs and other regular reports.

Improving business partner relationships:

A company enhances its relationships with its business partners, suppliers, customers, creditors and investors by being a good company to do business with. Financial reporting can help managers make more timely payments to suppliers, set competitive prices for customers, establish creditworthiness with creditors and conduct meaningful communication with investors.

Financial Reporting Requirements

Financial reporting requirements are constantly changing. The various standard setters, like the Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB) and Government Accounting Standards Board (GASB), are always tweaking the accounting standards to make financial reporting more accurate and useful. The SEC and the IRS update their rules in line with those tweaks, as well as in response to changes in the national economic climate and in government laws and programs.

Small, privately owned companies have fewer external financial reporting requirements than public companies. While the former are not required to release financial statements or other financial data to the public, they are required to file tax estimates and annual tax returns with the IRS. Additionally, lenders usually require various regular financial reports, such as specific debt covenant calculations. For those small companies interested in raising capital through smaller registered offerings, there is a dedicated SEC Office of Small Business Policy that provides guidance on financial reporting requirements.

Larger privately held companies sometimes voluntarily release financial reports to the public as a form of marketing. By giving the public some generalized information, they build interest among potential partners and acquisition targets, trading partners and the media. Their financial reporting usually is similar to that of large public companies, aiming both to satisfy their nonpublic stakeholders and to meet internal management purposes.

Public companies have the most stringent financial reporting requirements, which are primarily dictated by the SEC. The SEC financial reporting manual is hundreds of pages long, not including its guidance publications, called Staff Accounting Bulletins, which help CFOs and controllers interpret the rules. Most common SEC financial reporting requirements are the quarterly 10-Q, the annual 10-K, the 8-K for reporting significant events and Schedule 13D, which is filed when any person or entity attains 5% ownership of a single class of stock.

10 Use Cases for Financial Reporting

When a company tells its story through financial reporting, different stakeholders are listening for different reasons. Broad reasons are to track and analyze a company's current health — hence, the ever-present primary financial reporting use case of complying with regulatory, legal and tax requirements. But there are many other specific external and internal use cases for financial reports. Here's a list of 10 more:

By potential investors who are considering buying stock in a company.

For family, friends and private investors who are contemplating making an equity investment in a company., for banks' analyses of credit applications for loans, lines of credit and letters of credit for overseas activity., by credit card issuers evaluating a corporate or business credit card application., for potential merger or acquisition activity., for bargaining with labor unions., for senior management, to analyze profitability at all levels: consolidated, by subsidiary, by location and by product., to identify, analyze and manage cash flow for mature companies or assess burn rate for startup companies., to build budgets, projections and forecasts., to support decisions regarding business expansion or reduction., financial reporting examples.

Private companies disclose limited financial information on their corporate website, usually in the form of press releases. However, there are thousands of publicly available examples of financial reports from public companies. Their reports are posted on their websites and in press releases, and are included in the SEC's publicly accessible EDGAR online database.

Here are the main examples:

Form 10-Q (quarterly earnings release):

At the end of each quarter, public companies file a form 10-Q with the SEC, a key financial report used by investors and the public markets. The 10-Q includes unaudited financial statements and summary commentary from company management, as well as supplementary disclosures and schedules for the just-ended quarter and for the fiscal year to date. In many ways, it is like a “mini” annual 10-K. These are important financial reports because they provide the public with three periodic updates throughout the year on how a company is doing, rather than having to wait 12 months for an annual 10-K.

They can have a significant impact on a public company's stock price, since they may signal significant trends, for good or bad. For example, a recent 10-Q from a major pet e-tailer attributed its 27% increase in net sales (compared to the same quarter in the prior year) to an increase in new customers, combined with a rise in how much continuing customers were buying. However, the e-tailer also discussed how supply chain challenges related to the COVID-19 pandemic might hamper future increases. The company's stock price dropped 9% the day after the 10-Q filing.

Notes to the financial statements:

The notes and supplemental schedules found in 10-K filings can be as informative as the financial statements themselves. For example, one interactive entertainment retailer commonly located in malls across the US discussed in the notes to its most recent 10-K the impact that recent changes in lease accounting standards (ASC 842) had on its financial results and its ability to renegotiate many of its 300+ leases.

Form 10-K, Part 1 — aka "The Business":

Another interesting part of 10-K financial reporting can be found in Part 1, which is a qualitative discussion of a company's business, including strengths, weaknesses and other important matters that provide context for the quantitative data in the company's financial story. For example, an interesting discussion of the impact that the COVID-19 pandemic had on one large fitness chain's operations can be found in Part 1 of its most recent 10-K.

Annual reports:

Annual reports are considered more "friendly" than 10-Ks because they contain charts, illustrations, photos and a letter from the CEO. Historically printed on glossy paper, annual reports are geared toward shareholders and contain much of the same basic financial data as financial statements. Additionally, they are often used as marketing material for employees, customers and the company's community of business partners. There are several searchable, commercial online repositories to help find annual reports, but they can also be found directly on most companies' websites. Digital annual reports are designed to reflect a company's brand and be interactive, combining financial data with playful illustrations, video and audio. For example, an athletic sports brand used chart generators and animation in its online annual report, earning it awards.

Management's discussion and analysis (MD&A):

The MD&A gives company management a platform to tell its story in an easy to understand, yet data-heavy, narrative. It's found in annual reports and 10-Ks, and discusses a company's performance over the past three fiscal years, with an emphasis on the most recent year's sales and income compared to past years. The MD&A is also an opportunity to discuss unusual events, trends and outlook. For example, a large technology provider discussed the operational results of its various cloud, licensing, hardware and services lines of business, and the reasons it anticipates future growth, in a recent MD&A.

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Simply reporting correct numbers can be a challenge for many companies — and going beyond that to create truly useful financial reports can suck up far more resources. Meeting rigid external deadlines and ensuring timely reporting adds to the task. Using robust automation is the most efficient way to get the financial reporting process completed successfully in every fiscal period, with resources left over to analyze and act on the data provided by internal financial reporting. A solution like NetSuite Financial Reporting integrates a company's financial and operational data to provide templated and customized financial reporting that's updated in real time and securely available from anywhere with internet connectivity.

Financial reporting is the way businesses communicate financial data to external and internal stakeholders. External stakeholders — like regulatory agencies, current and potential shareholders and investors, and lenders — use financial reports to draw conclusions about a company's current and future financial health. Internal financial reporting is less rigid and used by internal management to inform decision-making. Rules and guidelines from GAAP, IASB, SEC and others provide a standard framework for financial reporting. Accounting departments can provide the most accurate and timely financial reporting by using integrated financial reporting software.

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Financial Reporting FAQs

What are the four basic financial reports.

There are three basic financial statements: the income statement, balance sheet and statement of cash flows. When a fourth is referenced, it's usually the statement of retained earnings.

How is financial reporting done?

Financial reporting is typically the last step in the accounting close, although automated software can provide real-time access to the data. It is done in compliance with GAAP, IFRS and SEC rules. Internal financial reporting is done by using financial dashboards, scheduled reports and ad hoc reports.

What Are the Risks of Inaccurate Financial Reporting?

In an ideal world, every company’s financial reporting would always be 100% error-free. Financial statements contain vital information about a company’s health, and internal and external stakeholders need to be able to…

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Financial Statement: What Is It and Why It Matters For Your Business

The humble financial statement. It’s never been more important for business owners to learn how to create and track one. Not only does the statement record critical financial data within a set period, but it has the potential to identify trends, potential opportunities, and lingering threats before they affect your bottom line.

But for the small startup or growing ecommerce brand, financial statements can seem extremely daunting. What are financial statements in the first place, and how are they supposed to be created and used in an ecommerce setting?

Thankfully, the conversations surrounding financial statements sound a lot more complicated than they really are. Let’s explore the many different types of financial statements, as well as their benefits and the tools available to create one for yourself.

What is a financial statement?

A financial statement is a type of accounting document that details sensitive financial information in an easy-to-understand way. Any activities related to your income, expenses, or cash flow are recorded in a spreadsheet, chart, or similarly visualized report. 

In the ecommerce industry, there are many types of people who may be responsible for financial statements. Very small brands may delegate this process to the owner, while larger companies may rely on CPAs or accountants to get the job done. Other businesses may have outsourced professionals or freelancers who specialize solely in financial statements.

It’s strongly encouraged to have your financial statements completed on a regular basis. Lending institutions and investors will request these financial documents to get an idea of your financial standing.

The benefits of financial statements 

Creating a financial statement benefits businesses of any size — from upstart companies to growing enterprises. These financial documents will clearly and succinctly detail information that is used to spur action, whether it shows dropping profits or highlights clear growth indicators. They are instrumental in protecting your brand from abject failure, keeping you informed about everything that might be impacting your business (and potentially where problems are coming from).

The use of financial statements for your business may also help you to:

• Get money from a third party . Well-kept financial statements prove whether or not your company is worthy of investor attention, crowdsourced funding, or bank loans.
• Stay within tax compliance . The stress of an audit on your business may be lessened by accurate, timely financial statements that correspond to any pressing questions.
• Forecast and plan for the future . Knowing what your profits have been for the past few years may help you to identify busy seasons or product trends that will be more profitable in the future. 

Depending on the size and scope of your business, financial statements may be used to craft annual reports. These provide a bird’s-eye view of your company’s yearly profits, which may or may not be necessary to prepare for next year. If you are a publicly owned company, you are required by law to provide shareholders with certain annual financial statements.

Four major types of financial statements

There are quite literally thousands of different financial statements used in the modern world. However, only three are generally used for private companies, plus an additional one for publicly traded organizations.

According to the SEC , these are income statements, balance sheets, cash flow statements, and equity statements. Let’s explore each of these in greater detail.

• Income statement

An income statement is a type of financial statement that calculates your total income for a given period. This is done by subtracting your expenses and overhead from your gross profits, as seen in this example :

Income statements are typically completed at monthly, quarterly, or yearly intervals. But it’s not a bad idea to complete them once a month to have the best possible idea of your business growth. 

Keep in mind that the income statement should be the first financial report completed in a given period. The information it provides will serve as the basis for all other reports. 

• Balance sheet

A balance sheet is a financial report used to measure the actual value of your company. The document will “balance” the income and expenses of your company by comparing business assets (items, vehicles, profits, etc.) to your liabilities (debts, taxes, equities). If the number is still in the green, the actual value of your business is positive. If not, your business may be held back by its debts.

A typical small business balance sheet may look something like this:

The more your business is positively valued, the more attention it will get from banks, lenders, and stakeholders. As you track your assets and liabilities over time, you can start to get a clearer picture of upcoming financial opportunities.

• Cash flow statement

More than 82% of businesses fail because of poor cash flow management skills. Relying on a cash flow financial statement helps avert a part of this crisis, supplying the information you need to make objective and clear decisions.

The average small business cash flow statement doesn’t have to be complicated, as evidenced by this example template :

Done right, these cash flow statements accurately depict the amount of money moving to and from your specific brand. This lets you make objective decisions regarding expenses to cut and income to leverage —l eading to bigger profits in the next quarter.

• Shareholders’ equity statement

If you are a publicly traded company, you will need to make a shareholders’ equity statement. The purpose of this statement is to inform shareholders about the changing value of your brand. Similar to the balance sheet, positive equity shows excellent health and strong growth — something shareholders are extremely keen to monitor.

Here’s an example of what a shareholders’ equity statement might look like for your business:

Keep in mind that some brands choose to build shareholders’ equity statements into their balance sheet rather than create a whole new report. Again, this largely depends on the size of your business and its unique needs. 

Tools to prepare financial statements

Ecommerce financial statements no longer need to be created with paper and pencil. In the age of technology, there are many different types of tools you could rely on to prepare your financial statements quickly, cleanly, and professionally. 

• Microsoft Excel (or Google Sheets) is a great way to get started. You can download Shopify’s Financial Worksheet Template to get a head start or focus on other downloadable templates that make your life easier.
• Platforms like QuickBooks and FreshBooks allow you to keep a close eye on regular financial activity. However, keep in mind these platforms may not have everything you’re looking for — including the features and integrations.
• Visyond allows users to instantly generate cash flow statements, income statements, and balance sheets. But be warned: this is going to cost you.

If you still don’t feel comfortable creating financial statements on your own, know that partnering with a CPA or accountant in your area is also acceptable. Just be sure to choose an expert with the time, talent, and experience you need to succeed.

Optimize your financial statements over time

The truth is, anyone in the modern ecommerce industry has the ability to create financial statements. Armed with countless tools and resources, it’s easy to simply plug and play in order to create reports for internal and external teams. 

Today, the real difficulty is found in optimizing said financial statements, or finding ways to leverage them for greater success. There’s a big difference between good and great, and a less-than-satisfactory financial statement has the potential to limit your business growth.

As your ecommerce brand continues to grow and mature, do what you can to:

• Simplify the process as much as possible with technology and tools
• Spot growth opportunities by mapping trends with visualized data
• Partner with a financial statement expert such as a CPA for help

The key to creating successful, accurate, and optimized financial statements is to constantly look for ways to improve. As your business continues to grow, lean heavily into your statements’ reporting process to discover new opportunities both now and in the future.

Financial statements FAQ

Why is a financial statement important.

Preparing a financial statement is important for tracking and understanding your company’s financial health. The statement also plays a vital role in managing taxes, dealing with audits, and securing external funding.

What are the four basic financial statements?

Can a bookkeeper prepare financial statements.

Yes, a bookkeeper is qualified to prepare financial statements. You can also use a CPA or prepare the financial statement yourself. 

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• Applying For Scholarships

Financial Need Scholarship Essay Examples (2023)

Jennifer Finetti Oct 2, 2022

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Many scholarships are awarded based on financial need. In order to win these scholarships, you must explain the nature of your financial need. In the guide below, we’ll explain how to write these types of essays to increase your chances of winning. Check out these scholarship essay examples for financial need scholarships.

How to write financial need scholarship essays

Here are some tips for writing financial need scholarship essays:

• Maintain a positive tone throughout the essay . You do not want to come across as self-pitying. Focus on ways you learned and grew from past experiences – how they made you stronger.
• Do not diminish other people’s suffering. This is a competition, but that doesn’t mean you should belittle your competitors. In fact, it would be better to say “I know there are many worthy candidates for this scholarship, but…” than to say “I have suffered far more than…” Show respect in everything you write.
• Frame your essay around a specific event. You may add other details if you have space to, but use one experience as the thesis for your essay.
• Avoid controversial statements and opinions. When discussing events from your past, do not belittle someone else or talk negatively about a group of people. You never know who will be reading your essay.
• Tell your story with honesty. Do not fabricate any details to make yourself sound needy. Your past and present circumstances will speak for themselves.
• Don’t try to sound philosophical. Some students will do this because they think it makes them seem smarter, but it rarely has that effect. Focus on proofreading and writing solid content. That is enough intelligence on its own.
• Discuss your career goals, if possible. You may not have room for this if the essay is short. If you do have room though, discussing your career goals will indicate a plan for the future. Review boards reward determination.

You know why you need financial aid. Tap into the key elements of your circumstances and use them to craft the perfect essay.

Many scholarships are awarded based on financial need. In order to win these scholarships, you must explain the nature of your financial need. In the guide below, we’ve provided examples of scholarship essays for financial need scholarships, along with some tips to help you write your own essay.

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Example 1: “Provide a statement of financial need”

Some scholarships will simply ask for a statement of financial need. There are no parameters to follow. You’re left to write whatever you want. Typically, a statement of financial need is two or three small paragraphs. This will come out to roughly 150-200 words, but it could be slightly longer. Think of this as a cover letter for your scholarship application, highlighting the key elements of your financial need. Don’t build up to the thesis. Get directly to the point.

I am the first person in my family to graduate high school, and thus the first to attend college. Both of my parents dropped out of school when they were teenagers. Because of their limited education, they have always worked in entry-level positions, earning barely enough to put food on the table. My first job I got was at the age of 12 delivering papers, and I have worked hard ever since to relieve pressure from my family. I enrolled in Mississippi’s HELP program during my senior year, which covers tuition and fees at select colleges in the state. I also have a Federal Pell Grant to cover my housing. However, I still need funding for books, supplies, and transportation to campus as needed. I am an engineering student, and our classes come with high fees. My parents cannot contribute to my college expenses, and I cannot work much while I’m in school. This scholarship would help me avoid costly student loans that could take years to repay.  

Example 2: “Describe your financial need in 100 words”

This essay is even shorter than the financial need statement. It may be one of several short answer questions you need to fill out. Working with 100 words is tricky. That only leaves room for about 7-10 sentences, depending on length. Make compelling statements using the fewest words possible.

Also note that grammar errors and misspellings will be much more noticeable in this short essay. Carefully proofread your writing before submitting the scholarship application.

I got pregnant and dropped out of high school when I was 15. By the age of 20, I had two more children, and we all shared a one-bedroom apartment. I worked three jobs to pay the bills, but I never earned much. When my oldest started high school, I did the same. I got my GED at 29 and enrolled in nursing school. My financial status has improved now with a GED, but I’m still a single mom with three kids. I want to become a registered nurse to give my children a stable future. I appreciate your consideration.

Word Count: 100

Example 3: “Explain your financial need in 500 or more words”

This scholarship essay prompt is the opposite of the one above. You have much more room to discuss your circumstances. Talk about your family life, your income, and other restraints that contribute to your financial aid . Try not to throw too much in the essay though. You want the information to flow together seamlessly. Edit carefully, and give the readers a full view of your situation.

My name is Brandon Noviello. I am a sophomore on track to earn my Bachelor of Arts in Sociology. I need financial aid because I do not have a family to contribute to my education. I was in foster care for two years before I aged out of the system, and now I am pursuing a degree completely on my own. I was raised by a wonderful woman who didn’t always have a wonderful life. My mother got pregnant after a sexual assault, but she was determined to raise a smart, successful man. She went through an accelerated program to graduate high school before I was born. She devoted the rest of her life to supporting me, both financially and emotionally. My mother’s family cut ties with her the moment she became pregnant. Life wasn’t easy for us, but I never wanted for anything. She always found a way to keep me fed, dressed, and in school. Unfortunately, she lost a long-term battle with depression when I was 16, and I was put into the foster system until I reached adulthood. I did not have a positive experience with foster care, but I admit, I had no desire to. My mother’s passing weighed heavily on my mind, and I felt an overwhelming sense of anger, regret, and frustration. There was one gleam of hope in my experience though. I had a great social worker. I fought her decisions every step of the way, and she still managed to find a family to get me through high school. My social worker was the only person I invited to my graduation ceremony.  She helped me realize how much one person’s efforts can make a difference in the lives of others. I was only one of countless children she had helped over the years. I researched how to become a social worker so I could help other children like me. My plan is to work with the Department of Human Services in the foster care and adoption division after I graduate. In order to make my dreams a reality, I need financial aid. I am working as a server to pay for food, utilities, and basic necessities, but I do not earn enough to pay for college as well. I go to school during the day and work at night. Furthermore, I have a maximum Pell Grant to cover most of my tuition, but I still need help with other expenses. I did not do well in high school as a result of my mom’s passing, but I have done well in college. I have a 3.25 cumulative GPA, and I have never made less than an A in a degree-related course. As such, I am committed to being successful despite my circumstances, and I want to help young people find that motivation within themselves. I look forward to working with children and teens in the foster system, so I can be the hope that someone else was for me.

Word Count: 498

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• Scholarship Essay

Jennifer Finetti

As a parent who recently helped her own kids embark on their college journeys, Jennifer approaches the transition from high school to college from a unique perspective. She truly enjoys engaging with students – helping them to build the confidence, knowledge, and insight needed to pursue their educational and career goals, while also empowering them with the strategies and skills needed to access scholarships and financial aid that can help limit college costs. She understands the importance of ensuring access to the edtech tools and resources that can make this process easier and more equitable - this drive to support underserved populations is what drew her to ScholarshipOwl. Jennifer has coached students from around the world, as well as in-person with local students in her own community. Her areas of focus include career exploration, major selection, college search and selection, college application assistance, financial aid and scholarship consultation, essay review and feedback, and more. She works with students who are at the top of their class, as well as those who are struggling. She firmly believes that all students, regardless of their circumstances, can succeed if they stay focused and work hard in school. Jennifer earned her MA in Counseling Psychology from National University, and her BA in Psychology from University of California, Santa Cruz.

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What is an income statement?

• Key components of an income statement 
• Why they matter
• How to read an income statement 

What is an Income Statement?

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• An income statement is a financial document that details the revenue and expenses of a company.
• Some investors and analysts use income statements to make investing decisions.  
• The income statement, along with additional financial documents, is required to be filed with the Securities and Exchange Commission (SEC).

An income statement is one of three major financial statements used to evaluate the health of a company, along with the balance sheet and cash flow statement . There are several terms you'll need to understand in order to know how to read an income statement. 

An income statement is a financial statement that outlines a company's gains, losses, revenue, and expenses during a specific period. 

Also called a Profit and Loss (P&L) Statement or a statement of revenue and expense, the income statement is one of three major documents, along with the cash flow statement and the balance sheet , that provide information on a company's financial results during a specified time frame. 

Key components of an income statement  

There are several key components of an income statement, and knowing them can go a long way toward helping you interpret one of these documents effectively. 

Revenue 

Revenue is the amount of money the company brought in during the reporting period. With revenue, it may be important to note any trends to determine whether the company is making more money over time or if sales are slowing down. 

Expenses 

This section, crucial to analyzing an income statement, details how much the company has spent. Similar to revenue, it may be important to note trends to see if the company is spending more or if they're becoming more efficient over time. When looking at expenses, "We should consider whether the expenses grow in proportion to revenue and the drivers of these expenses," says Patrick Badolato, PhD, CPA, an associate professor in the accounting department at the McCombs School of Business at the University of Texas. 

Expenses can include many different line items, for example interest paid on debt, depreciation and amortization, rent and overhead, as well as money paid toward salaries and benefits. 

For the sake of clarity, depreciation is an accounting measure to account for the cost in the loss of value for tangible assets of the company, whereas amortization is an accounting technique to lower the book value of debt over time. 

Expenses also include cost of goods sold (COGS), which is the amount spent on the production of the products or services sold. For a company like Apple, it would include the glass to make the phone screen or the chips that go into the iPhone. 

Other costs that would be counted under expenses would be operating and non-operating expenses. Operating expenses are the cost to bring the product to the market. This could include things like marketing, payroll, and overhead expenses, such as insurance and rent. Non-operating expenses could include things that do not directly relate to core business functions. It may include things like contributions to pension plans or dividends to shareholders. 

Another major consideration is taxes, which of course cuts into any financial results a company generates. 

Net income 

Net income represents the total income left over after all deductions and expenses, including taxes, have been taken out. This is the last line on the income statement, frequently referred to as the bottom line, and it tells you what a company's profit or loss was during a specific time period. 

Why income statements matter

The income statement is important for a wide range of parties, including investors and people responsible for running a company (its executives and managers). 

"The income statement should be used by anyone trying to understand the business conducted as well as the profitability of a company," says Badolato. 

Assesses profitability

One simple way an income statement can come in handy is by providing a sense of just how profitable a company really is. Is the company in question making money? 

Income statements can help answer this question, along with providing some excellent insight into why, exactly, a company is experiencing its current financial performance. 

Informs business decisions 

By reviewing a company's income statement, you can quickly pinpoint areas that have room for improvement. For example, a company could cut costs in one area and put more money into others, such as sales and marketing, that could potentially fuel expansion. 

Attract investors 

Investors may use income statements, along with other financial statements, to make investing decisions and determine the financial health of a company. 

For example, an increasing amount of sales from year to year might be attractive for a potential investor and can be found in the first line of an income statement. Conversely, if costs are rising this can also be seen on the income statement and may lead an investor to ask more questions about the long-term profitability of the company. 

Investors and financial analysts also use the income statement to derive popular financial ratios like Earnings Per Share (EPS) .

Earnings per share is a measure that compares a company's net income compared to the outstanding shares. The price-to-earnings ratio, or P/E ratio , is another commonly used metric that factors in the company's stock price in relation to EPS. When comparing companies, EPS and the P/E ratio can help differentiate two companies in the same category and help an investor make a more sound investing decision, but both use information provided through the income statement. 

"The equation driving the Income Statement is: Revenues – Expenses + Gains – Losses = Net Income," says Badolato. 

Income statements are also important to regulators. All public companies are required to file a Form 10-K each year with the Securities and Exchange Commission (SEC) and Form 10-Q each quarter which include the income statement and other financial documents and disclosures. 

Income statement analysis

When analyzing income statements, there are two primary methods that are used: vertical analysis and horizontal analysis.

Vertical analysis shows each item on a financial statement as a percentage. An example of this would be the COGS expressed as 35% of the total revenue. This type of analysis can be useful when comparing with other companies in the industry. 

Horizontal analysis is used to review a company's performance over two or more periods by stacking each line item directly next to each other from the previous period. Instead of looking at one income statement at a time from different periods, horizontal analysis compares them side-by-side in one view. 

How to read an income statement 

Below is the 2021 quarterly income statement from Ford's Form 10-Q . One of the first things that you will notice is that the report is using horizontal analysis. This is because the report is comparing the second quarter of 2020 to the second quarter of 2021 as well as the first half of 2020 and the first half of 2021. 

In the first section under Revenues, you'll see each of Ford's major revenue streams, including car sales under Automotive, Ford Credit, and Mobility. In the notes section of the 10-Q, the Mobility line refers to Ford's autonomous vehicles and related business as well as its equity stake in Argo AI.

Next in the cost and expenses section, you'll notice where Ford is spending its cash. The bulk of those expenses fall under cost of sales, which is another name for the cost of goods sold. You can also see that costs have increased from the second quarter of 2020 to the second quarter of 2021 resulting in a net income of $561 million during the second quarter and $3.8B during the first half of 2021 in the final column on the right. 

Income statement vs. balance sheet 

Both income statements and balance sheets provide important details about how a company uses its cash and other assets, but there are a few key differences between the two.

Think of an income statement like a financial timeline, whereas a balance sheet is a snapshot at one point in time. This is because income statements provide details on the amount of money made and spent during a period. The income statement essentially answers the following questions: How much money did the company make? How was that money spent? Did the company make a profit? 

The balance sheet, on the other hand, tells you how much the company has in assets, liabilities and shareholder's equity. The balance sheet follows a simple formula:

Asset = Liabilities + Shareholder's equity

Like the name mentions, the figures on the balance sheet must match as any increases or decreases must be offset. Unlike the income statement, it does not provide information on how much money the company has made or lost, it only provides the amount of debt, cash and other assets that the company owns at that point in time. 

While these financial statements are different, both the income statement and balance sheet along with the cash flow statement are still linked and should be used together to determine a more holistic financial picture of a company. 

Income statements: Conclusion

The income statement is a good entry point to understand and evaluate a company's revenue and costs, but it's important to keep in mind that it's not a document that can tell the full story. 

"Financial statements are designed to work as a system and not as stand-alone statements," adds Badolato. "The Income Statement is only one piece in understanding the financial performance of a business. Using one financial statement without the others and other publicly available information — such as the footnotes in a financial filing — would be similar to betting before looking at one's cards."

The frequency can vary, but usually, companies prepare income statements either quarterly or annually. 

An income statement shows a company's financial performance during a specific time frame, whereas a balance sheet shows a company's assets and liabilities at one point. 

Companies release income statements in their financial reports, and you can also find them on the investor relations sections of corporate websites. 

An income statement can display a negative net income, which indicates that a company suffered a loss during a specific period. 

You can use the information on an income statement to calculate key ratios like gross margin, operating margin and earnings per share. 

• Main content

What was Trump found guilty of? See the 34 business records the jury decided he falsified

Donald Trump was found guilty of 34 felony counts of falsifying business records after prosecutors successfully convinced a jury he disguised hush money reimbursement as legal expenses. He is the first former president to be convicted of a crime.

Each count is tied to a different business record that prosecutors demonstrated Trump is responsible for changing to conceal or commit another crime .

Those records include 11 checks paid to former lawyer Michael Cohen , 11 invoices from Michael Cohen and 12 entries in Trump's ledgers.

The jury found that Trump authorized a plan to reimburse Cohen for the $130,000 hush money payment issued to Stormy Daniels and spread the payments across 12 months disguised as legal expenses.

Live updates: Former President Donald Trump found guilty on all counts in hush money case

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Breakdown of 34 counts of falsifying business records

Here are the 34 business records Trump was found guilty of falsifying, as described in Judge Juan Merchan 's jury instructions :

• Count 1: Michael Cohen's invoice dated Feb. 14, 2017
• Count 2: Entry in the Detail General Ledger for the Donald J. Trump Revocable Trust dated Feb. 14, 2017
• Count 3: Entry in the Detail General Ledger for the Donald J. Trump Revocable Trust dated Feb. 14, 2017
• Count 4: A Donald J. Trump Revocable Trust Account check and check stub dated Feb. 14, 2017
• Count 5: Michael Cohen's invoice dated March 16, 2017
• Count 6: Entry in the Detail General Ledger for the Donald J. Trump Revocable Trust dated March 17, 2017
• Count 7: A Donald J. Trump Revocable Trust Account check and check stub dated March 17, 2017
• Count 8: Michael Cohen's invoice dated April 13, 2017
• Count 9: Entry in the Detail General Ledger for Donald J. Trump dated June 19, 2017
• Count 10: A Donald J. Trump account check and check stub dated June 19, 2017
• Count 11: Michael Cohen's invoice dated May 22, 2017
• Count 12: Entry in the Detail General Ledger for Donald J. Trump dated May 22, 2017
• Count 13: A Donald J. Trump account check and check stub May 23, 2017
• Count 14: Michael Cohen's invoice dated June 16, 2017
• Count 15: Entry in the Detail General Ledger for Donald J. Trump dated June 19, 2017
• Count 16: A Donald J. Trump account check and check stub dated June 19, 2017
• Count 17: Michael Cohen's invoice dated July 11, 2017
• Count 18: Entry in the Detail General Ledger for Donald J. Trump dated July 11, 2017
• Count 19: A Donald J. Trump account check and check stub dated July 11, 2017
• Count 20: Michael Cohen's invoice dated Aug. 1, 2017
• Count 21: Entry in the Detail General Ledger for Donald J. Trump dated Aug. 1, 2017
• Count 22: A Donald J. Trump account check and check stub dated Aug. 1, 2017
• Count 23: Michael Cohen's invoice dated Sept. 11, 2017
• Count 24: Entry in the Detail General Ledger for Donald J. Trump dated Sept. 11, 2017
• Count 25: A Donald J. Trump account check and check stub dated Sept. 12, 2017
• Count 26: Michael Cohen's invoice dated Oct. 18, 2017
• Count 27: Entry in the Detail General Ledger for Donald J. Trump dated Oct. 18, 2017
• Count 28: A Donald J. Trump account check and check stub dated Oct. 18, 2017
• Count 29: Michael Cohen's invoice dated Nov. 20, 2017
• Count 30: Entry in the Detail General Ledger for Donald J. Trump dated Nov. 20, 2017
• Count 31: A Donald J. Trump account check and check stub dated Nov. 21, 2017
• Count 32: Michael Cohen's invoice dated Dec. 1, 2017
• Count 33: Entry in the Detail General Ledger for Donald J. Trump dated Dec. 1, 2017
• Count 34: A check and check stub dated Dec. 5 2017

Jurors saw copies of these records entered as evidence. Evidence from the entire trial is available on the New York Courts website .

Contributing: Aysha Bagchi

Home — Essay Samples — Economics — Corporate Finance — Importance of Financial Literacy

Importance of Financial Literacy

• Categories: Corporate Finance

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Words: 1983 |

10 min read

Published: Dec 5, 2018

Words: 1983 | Pages: 4 | 10 min read

Financial tools – financial literacy

• Financing activities include the borrowing and repayment of long-term liabilities.
• Investing activities include the purchase and sale of your long-term fixed assets, such as property, plant and equipment.
• Operating activities include your day-to-day operations.
• Budgeting Basics
• ensure you have enough money for your future projects.
• enable you to make confident financial decisions and meet your objectives
• ensure you can continue to fund your current commitments
• control your finances
• Banking and Financial Services
• The Impact of Interest Understanding the ins and outs of interest can impact your finances more than you likely realize, so it’s an important concept to gain a better understand of early on in life.
• The Credit-Debt Roller-coaster

Works Cited

• Bhatia, A. (2022). Financial Literacy and Entrepreneurship: A Review. International Journal of Research in Business Studies and Management, 9(4), 14-22.
• Cooper, D., & Ebert, R. (2020). Budgeting Basics for Small Business Owners. Journal of Small Business Management, 58(4), 722-740.
• Federal Reserve Bank of Kansas City. (2021). Cash Management Basics: A Guide for Small Business Owners. Retrieved from https://www.kansascityfed.org/~/media/files/publicat/psr/pdf/cash-management-basics.pdf
• Financial Consumer Agency of Canada. (2022). Banking and Financial Services. Retrieved from https://www.canada.ca/en/financial-consumer-agency/services/banking.html
• Hackston, D., & Dowling, M. (2023). Financial Literacy Rates Among Adults in Advanced and Emerging Economies. International Journal of Financial Education, 21(1), 18-35.
• Organization for Economic Co-operation and Development. (2017). OECD/INFE Core Competencies Framework on Financial Literacy for Adults. Retrieved from http://www.oecd.org/daf/fin/financial-education/International-Core-Competencies-Framework.pdf
• Pailella, P. (2016). Financial Literacy and Entrepreneurial Success: The Moderating Role of Financial Knowledge and Experience. Journal of Small Business Management, 54(4), 1175-1192.
• Parcheta, M. (2021). The Role of Financial Literacy in Women Entrepreneurship Development. European Financial and Accounting Journal, 16(2), 87-100

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What is financial literacy?

Key takeaways

• Financial literacy is a measure of how well you understand money topics like credit cards, insurance, and investing.
• The more someone understands financial basics, the more likely they are to spend below their means and save for emergencies and retirement, according to the Financial Industry Regulatory Authority (FINRA).
• Financial literacy is even more important today as most workers save for retirement themselves, without pensions.

For many people, finance terms sound like a foreign language. But if you don't understand the basics of managing money and the lingo used to talk about it, it could be tricky to reach financial goals like paying off debt, buying a home, or saving for retirement. The good news is that you don't have to be a Wall Street pro to hit these targets. Mastering a few basic financial literacy concepts could help you get there.

Feed your brain. Fund your future.

Financial literacy is a person's understanding of money topics. Someone who's financially literate would be able to set a budget , manage a bank account, and achieve a good credit score . Financial literacy could also include more complex skills like managing debt, buying insurance, investing, and retirement planning.

The more familiar you are with these topics, the higher your financial literacy. If you're not sure how your financial knowledge stacks up, you could test your knowledge using free online quizzes from reputable financial organizations or universities to measure your overall understanding of money matters.

Why is financial literacy important?

Financial literacy is important because you make financial decisions every single day. Being financially literate could help you make better money choices and avoid costly missteps. For example, someone who doesn't understand how credit card interest rates work might not realize how expensive it is to carry an unpaid balance, so they fall into debt—though having high expenses and low income is another common reason. Because many parents don't discuss money with their children, unless you brush up on financial literacy fundamentals , you could be at risk of repeating any money mistakes your family made.

Financial literacy is especially important when it comes to retirement. In the past, many workplaces offered pension plans to cover employees' cost of living when they stopped working. Now, you likely need to pay for retirement by yourself, using savings from an individual retirement account ( IRA ) or employer-sponsored plan, like a 401(k) . But if you don't know how to harness the power of these saving vehicles, you might not have enough money in retirement. That's why it pays to be financially literate and understand the different accounts that could be available to you.

Financial literacy statistics

Understanding money is the first step to managing it well, yet only 64% of Americans received a passing grade on a basic financial literacy quiz from S&P Global. 1 This lack of knowledge cost the average American $1,506 in 2023, according to a survey from the National Financial Educators Council. 2 And it can have a costly impact on day-to-day life too.

• 60% of US adults live paycheck to paycheck, including more than 40% who make 6 figures, according to LendingClub. 3
• 36% of Americans have more credit card debt than emergency savings, according to a Bankrate survey. 4
• And 33% of Americans have no savings at all, according to a survey by Ramsey Solutions. 5

The flipside is that when people have more financial literacy, they do better with saving money, avoiding debt, and planning for long-term goals like retirement.

Because of financial literacy's impact, many states are requiring high schools to offer personal finance classes, with some even making it a graduation requirement. In fact, Fidelity has helped develop curriculum for high schools across the country.

Personal financial literacy basics

Improving your financial outlook could start with understanding some key topics and bringing that knowledge into your day-to-day money management practices. Here's some of what you need to know.

Bank accounts

A bank account gives you a place to save your money, pay bills, and deposit checks. The type of account you use—checking, savings, or money market, for example—will depend on whether you plan to access your cash daily, save it for an emergency, or grow it over time. And there may be other options . 

Of the millions of bank accountholders, many might not understand how their accounts work, especially what banks might charge them. These could include fees for not keeping a large enough balance, overdrafting (or spending more cash than is available), or using out-of-network ATMs. Others offer low- or no-fee accounts, often tied to regular direct deposits of paychecks, or higher annual percentage yields (APY), which is a yearly return on the money you put in.

A budget tracks how much money you have coming in, as well as how much you spend and how you spend it. By understanding where your money goes, you might find ways to cut costs and save more. A good budgeter makes sure to never spend more than they bring home. Here are 7 steps to learn how to budget . Want a personalized budget you don't have to make yourself? Fidelity's Budgeting Tool Log In Required helps develop one for you. Plug in your income, and in seconds you'll get a budgeting framework based on national average estimates you can easily tweak to fit your actual spending habits. To get more specific suggestions, you can connect your bank accounts.

Emergency savings

You never know when you might need money because of losing your job, surprise car repairs, or medical bills. Start by setting aside $1,000 or 1 month's worth of essential expenses. Then aim to build up 3 to 6 months' worth of expenses in your emergency savings account.

Credit cards and debt management

Credit cards can be a valuable tool if you use them wisely. But credit cards are loans—and they could get you in trouble if you run up balances without paying them off before you get charged interest. Be sure to read the terms and conditions that come with each card so you understand how it works, including the APR interest rate, the payment deadlines, rewards, and penalties, like for missing a minimum monthly payment or spending past your limit. These 7 credit card tips could also help.

If you have other loans, like a mortgage or student loan, they'll also have a specific set of guidelines, interest rates, and deadlines that will determine how you'll pay them off. 

Once a year, check your credit report as well. This report shows how well you've been managing debt and may include a credit score , which sums up in a 3-digit number how reliable you are with paying back debts on time. A higher score makes qualifying for future loans and credit cards easier and could potentially get you better interest rates on mortgages, car loans, and other loans.

A financial plan with goals

Financial planning is creating a comprehensive plan to help reach your financial goals. By considering your whole financial life, it provides guidance on reaching both, short-term targets as well as larger, long-term ones, like retirement, buying a new house, saving for college, and/or donating to charity. With this plan, you can determine how much you may need to save annually as well as how to invest appropriately to hit these various goals.

Investment and retirement accounts

While saving money in the bank is a good start, investments like stocks , bonds , mutual funds , and exchange-traded funds ( ETFs ) could potentially grow your nest egg even more. To maximize your financial literacy, aim to understand how each one works (just click the links for explainers), as well as the different rules for retirement accounts like an IRA and 401(k) .

Insurance helps protects you, your family, and your most valuable belongings (and could keep you from having to pay out of pocket) in case of an accident, illness, or death. Some insurance types to consider are life, disability, health, home, and auto. Consider having enough coverage to protect your family in the event of loss, and discuss the details of your policies with your provider so you know how they work before you need to file a claim.

How can you increase your financial literacy?

You can increase your personal financial literacy with a bit of studying. It won't happen overnight, but it's also much less complicated than it may seem initially. Here are some ways to wise up.

Fidelity's Learning Center

Get the basics all in one place through articles from Fidelity you could read at your own pace. Many are written for newbies, so they're easy to understand. Some good sections to start with: Saving and budgeting money , Managing debt , and Investing for beginners . Or you could have financial literacy basics come to your inbox with the Smart Money newsletter .

A personal finance course could help boost your financial literacy. A community college may offer one in your area, but there are also online courses covering financial literacy for beginners. Some cost a pretty penny; others are free.

Books and professionals

There are countless books on personal finance. You could consider checking out a variety of them to get different perspectives on how to manage your money at different stages.

Financial planning seminars

Local financial planners and investment firms regularly host free events on topics like insurance, investing, and retirement planning. They do so in hopes of recruiting new clients, but you could attend just to learn more. Your employer may also offer seminars to explain employee benefits like health insurance and a 401(k)—consider taking advantage. Here's another way to learn insurance basics and other ideas for crisis-proofing your life .

A financial advisor

For more hands-on guidance, you could work directly with a financial advisor . They will walk you through how to put a financial plan together and answer any of your questions.

When it comes to finance, a little knowledge goes a long way. But don't just take any social media star's word for it. Stick with well-established companies and credentialed financial pros instead.

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What Is Financial Analysis?

Understanding financial analysis, corporate financial analysis, investment financial analysis, types of financial analysis, horizontal vs. vertical analysis.

• Example of Financial Analysis
• Financial Analysis FAQs

The Bottom Line

• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

Financial Analysis: Definition, Importance, Types, and Examples

Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solvent , liquid , or profitable enough to warrant a monetary investment.

Key Takeaways

• If conducted internally, financial analysis can help fund managers make future business decisions or review historical trends for past successes.
• If conducted externally, financial analysis can help investors choose the best possible investment opportunities.
• Fundamental analysis and technical analysis are the two main types of financial analysis.
• Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security.
• Technical analysis assumes a security's value is already determined by its price, and it focuses instead on trends in value over time.

Investopedia / Nez Riaz

Financial analysis is used to evaluate economic trends, set financial policy, build long-term plans for business activity, and identify projects or companies for investment. This is done through the synthesis of financial numbers and data. A financial analyst will thoroughly examine a company's financial statements —the income statement , balance sheet , and cash flow statement . Financial analysis can be conducted in both corporate finance and investment finance settings.

One of the most common ways to analyze financial data is to calculate ratios from the data in the financial statements to compare against those of other companies or against the company's own historical performance.

For example, return on assets (ROA) is a common ratio used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated for several companies in the same industry and compared to one another as part of a larger analysis.

There is no single best financial analytic ratio or calculation. Most often, analysts use a combination of data to arrive at their conclusion.

In corporate finance, the analysis is conducted internally by the accounting department and shared with management in order to improve business decision making. This type of internal analysis may include ratios such as net present value (NPV) and internal rate of return (IRR) to find projects worth executing.

Many companies extend credit to their customers. As a result, the cash receipt from sales may be delayed for a period of time. For companies with large receivable balances, it is useful to track days sales outstanding (DSO), which helps the company identify the length of time it takes to turn a credit sale into cash. The average collection period is an important aspect of a company's overall cash conversion cycle .

A key area of corporate financial analysis involves extrapolating a company's past performance, such as net earnings or profit margin , into an estimate of the company's future performance. This type of historical trend analysis is beneficial to identify seasonal trends.

For example, retailers may see a drastic upswing in sales in the few months leading up to Christmas. This allows the business to forecast budgets and make decisions, such as necessary minimum inventory levels, based on past trends.

In investment finance, an analyst external to the company conducts an analysis for investment purposes. Analysts can either conduct a top-down or bottom-up investment approach. A top-down approach first looks for macroeconomic opportunities, such as high-performing sectors, and then drills down to find the best companies within that sector. From this point, they further analyze the stocks of specific companies to choose potentially successful ones as investments by looking last at a particular company's  fundamentals .

A bottom-up approach, on the other hand, looks at a specific company and conducts a similar ratio analysis to the ones used in corporate financial analysis, looking at past performance and expected future performance as investment indicators. Bottom-up investing forces investors to consider  microeconomic  factors first and foremost. These factors include a company's overall financial health, analysis of financial statements, the products and services offered, supply and demand, and other individual indicators of corporate performance over time.

Financial analysis is only useful as a comparative tool. Calculating a single instance of data is usually worthless; comparing that data against prior periods, other general ledger accounts, or competitor financial information yields useful information.

There are two types of financial analysis: fundamental analysis and technical analysis .

Fundamental Analysis

Fundamental analysis uses ratios gathered from data within the financial statements, such as a company's earnings per share (EPS), in order to determine the business's value. Using ratio analysis in addition to a thorough review of economic and financial situations surrounding the company, the analyst is able to arrive at an intrinsic value for the security. The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued.

Technical Analysis

Technical analysis uses statistical trends gathered from trading activity, such as moving averages (MA). Essentially, technical analysis assumes that a security’s price already reflects all publicly available information and instead focuses on the  statistical analysis of price movements . Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security’s fundamental attributes.

When reviewing a company's financial statements, two common types of financial analysis are horizontal analysis and vertical analysis . Both use the same set of data, though each analytical approach is different.

Horizontal analysis entails selecting several years of comparable financial data. One year is selected as the baseline, often the oldest. Then, each account for each subsequent year is compared to this baseline, creating a percentage that easily identifies which accounts are growing (hopefully revenue) and which accounts are shrinking (hopefully expenses).

Vertical analysis entails choosing a specific line item benchmark, then seeing how every other component on a financial statement compares to that benchmark. Most often, net sales is used as the benchmark. A company would then compare cost of goods sold, gross profit, operating profit, or net income as a percentage to this benchmark. Companies can then track how the percent changes over time.

Examples of Financial Analysis

In the nine-month period ending Sept. 30, 2022, Amazon.com reported a net loss of $3 billion. This was a substantial decline from one year ago where the company reported net income of over $19 billion.

Financial analysis shows some interesting facets of the company's earnings per share (shown above. On one hand, the company's EPS through the first three quarters was -$0.29; compared to the prior year, Amazon earned $1.88 per share. This dramatic difference was not present looking only at the third quarter of 2022 compared to 2021. Though EPS did decline from one year to the next, the company's EPS for each third quarter was comparable ($0.31 per share vs. $0.28 per share).

Analysts can also use the information above to perform corporate financial analysis. For example, consider Amazon's operating profit margins below.

• 2022: $9,511 / $364,779 = 2.6%
• 2021: $21,419 / $332,410 = 6.4%

From Q3 2021 to Q3 2022, the company experienced a decline in operating margin, allowing for financial analysis to reveal that the company simply earns less operating income for every dollar of sales.

Why Is Financial Analysis Useful?

The financial analysis aims to analyze whether an entity is stable , liquid, solvent, or profitable enough to warrant a monetary investment. It is used to evaluate economic trends, set financial policies, build long-term plans for business activity, and identify projects or companies for investment.

How Is Financial Analysis Done?

Financial analysis can be conducted in both corporate finance and investment finance settings. A financial analyst will thoroughly examine a company's financial statements—the income statement, balance sheet, and cash flow statement.

One of the most common ways to analyze financial data is to calculate ratios from the data in the financial statements to compare against those of other companies or against the company's own historical performance. A key area of corporate financial analysis involves extrapolating a company's past performance, such as net earnings or profit margin, into an estimate of the company's future performance.

What Techniques Are Used in Conducting Financial Analysis?

Analysts can use vertical analysis to compare each component of a financial statement as a percentage of a baseline (such as each component as a percentage of total sales). Alternatively, analysts can perform horizontal analysis by comparing one baseline year's financial results to other years.

Many financial analysis techniques involve analyzing growth rates including regression analysis, year-over-year growth, top-down analysis such as market share percentage, or bottom-up analysis such as revenue driver analysis .

Last, financial analysis often entails the use of financial metrics and ratios. These techniques include quotients relating to the liquidity, solvency, profitability, or efficiency (turnover of resources) of a company.

What Is Fundamental Analysis?

Fundamental analysis uses ratios gathered from data within the financial statements, such as a company's earnings per share (EPS), in order to determine the business's value. Using ratio analysis in addition to a thorough review of economic and financial situations surrounding the company, the analyst is able to arrive at an intrinsic value for the security. The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued.

What Is Technical Analysis?

Technical analysis uses statistical trends gathered from market activity, such as moving averages (MA). Essentially, technical analysis assumes that a security’s price already reflects all publicly available information and instead focuses on the statistical analysis of price movements. Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security’s fundamental attributes.

Financial analysis is a cornerstone of making smarter, more strategic decisions based on the underlying financial data of a company. Whether corporate, investment, or technical analysis, analysts use data to explore trends, understand growth, seek areas of risk, and support decision-making. Financial analysis may include investigating financial statement changes, calculating financial ratios, or exploring operating variances.

Amazon. " Amazon.com Announces Third Quarter Results ."

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Related Content

Net income: the bottom line and how to calculate it.

Published: 14 May 2024

Net income is the measure of profit after all expenses are accounted for, including taxes. It is one of the most important business metrics for managers and shareholders. In this article:

Why is net income called the bottom line?

Why understanding net income is important, calculate net income for your business.

• Gross income vs net income

Net income in other financial statements

There are many ways to assess the success of a business, but the king of them all is net income.

“Net income is a true representation of how profitable you are,” says Max Dubiel, Founder of Redemption Roasters, a coffee chain whose mission is to give work opportunities to former prisoners. “It is the income of a company after expenses. It is the one metric that matters for aspiring and growing businesses.”

“There are other useful metrics,” adds Dubiel. “Venture capitalists look at  EBITDA , which is earnings before interest, tax, depreciation and amortisation. They believe it makes it easier to compare like-for-like, as interest rates or tax may vary year-on-year, so they want to see profit before those factors are taken into account. But if you own a company, you want to know how much money you've made at the end of the year, after tax and interest. That's net income.”

Net income is commonly referred to as the bottom line because it sits at the bottom of the  income statement . This statement, also known as the profit and loss statement (P&L) calculates your business's profits over the past year. Typically, an income statement will start with revenue at the top and then deduct items in sequence, with net income as the bottom line. This can be seen clearly on the sample income statement below:

Other names for net income 

The layman's term for net income is simply profit. It is what a business keeps after interest, tax, and other accounting measures such as  depreciation  and  amortisation .

But net income may also be referred to as net profit, net earnings, profit after tax, net income available to shareholders or, as discussed, the bottom line. 

Understanding the composition of net income is vital to managers, shareholders, and accountants.

“There is no way of fudging net income,” says Ellis Bennett, Founder of EA Accountancy, an accountancy practice with over 300 clients. “People on social media talk about gross revenue and gross profit. There's only one that matters, and that's net income; the money you have left after everything is accounted for.”

Small business owners may choose to take out net income as dividends at the end of the  financial year  or keep the money in the business to invest and expand. Without a positive net income, the company is  breaking even  or recording a loss.

To calculate net income, subtract total expenses from total revenue: 

Net Income = Total Revenue - Total Expenses 

Each of these items should be included when calculating your total expenses: 

Cost of goods sold (COGS) :  COGS  represents the direct costs associated with producing goods or services sold by a company. It includes expenses such as raw materials, labour costs directly related to production, and manufacturing overheads.

Operating expenses : These expenses are incurred in the day-to-day operations of a business and are not directly tied to the production of goods or services. They include:

• Wages : Payments made to employees for their services, including salaries, wages, bonuses, and commissions.
• Rent : The cost of leasing or renting space for business operations, such as office space, retail stores, or manufacturing facilities.
• Utilities : Expenses related to essential services like electricity, water, heating, and internet connection used in the business.
• Insurance : Premiums paid to insure business assets, property, liability, and employee health.
• Marketing : Expenditures on promoting the business, including advertising campaigns, marketing materials, and sponsorships.
• Depreciation : The allocation of the cost of assets over their useful lives, representing the wear and tear or obsolescence of tangible assets like machinery, equipment, and buildings.
• Maintenance : Costs associated with repairing and maintaining equipment, vehicles, facilities, and other assets.
• Professional services : Fees paid to external professionals such as lawyers, accountants, consultants, and advisors.
• Travel and entertainment : Expenses related to business travel, accommodation, meals, and entertainment for clients or employees.

Interest expenses : These are costs incurred from borrowing funds or financing activities. They include interest payments on loans, lines of credit, bonds, and other forms of debt.

Taxes : Businesses are subject to various taxes, including income taxes, property taxes, sales taxes, and payroll taxes.

Non-operating expenses : These are expenses not directly related to the core business operations. They may include losses from the sale of assets, impairment charges, or legal settlements.

Extraordinary expenses : Unusual or infrequent expenses that are not expected to occur regularly. Examples include natural disaster losses, restructuring costs, or write-offs.

Juggling the payment of business expenses with revenue coming into the business is a major pressure on many small business owners. With an  American Express® Business Gold Card , you get up to 54 days to clear your Card balance, which may help put more flexibility in your cash flow¹.

Gross income v net income

A comparator to net income is  gross income . It is the profit a company retains after subtracting the direct costs of production, such as raw materials, shipping costs, labour, and marketing. Indirect costs, such as administration or legal bills, are not deducted. Nor are taxes. Gross income states the profitability of a company without considering financial factors or non-core expenses.

The metrics of net income form part of a larger picture. Business managers will need to understand these  financial statements :

• Balance sheet
• Income statement (also known as profit and loss statement)
• Cash flow statement
• Statement of retained earnings

In each case, net income remains the same. On the balance sheet, it appears as an asset, to be set against liabilities.

A  cash flow statement  explores how a cash balance flows from one period to the next - this could be over a year, but can also be broken down into month-by-month or week-by-week assessments. It is a particularly helpful statement for small businesses with limited resources to understand how much cash they have coming in or going out at any point in time.

The statement of retained earnings will show how much net income is held by a company, rather than distributed to shareholders.

In the end, net income takes primacy over all other accounting metrics. It reveals in a single figure, after all costs and taxes are accounted for, how much profit a company made in a year.

1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the  Business Basic Card .  

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