Successful business performance should be measurable, comparable, and indicates accurate figures. Financial reporting is one of the most critical processes of this kind.
It is used in managing the success of the business, making track for goals and milestones, and helps in making important decisions in the future.
Financial Reporting
Financial reporting offers financial information on businesses of great value to investors and other users in decision-making.
Financial reporting utilizes financial statements and reports for the disclosure of financial data, which shows the economic health of a company within a given period.
To management, the information is critical to making decisions for the company’s future and informing capital providers like creditors and investors about the profitability and stability of the company in finances.
Types of financial reporting
As a owner of business, you may work in different formats of financial reporting, it depends on your needs and goals. Here are some of the important types of financial statements:
Balance sheet
It is a statement issued by a company with details of the assets or liabilities at any point in time.
Such a statement may be called one of the three core financial statements which include the income statement and cash flow statement and, therefore is normally prepared to evaluate the performance of a business.
Income statement
Income Statement is one of the most basic financial statements a company has and also indicates how much profit they have been making and losing over a given time-span.
Profit or loss is expressed through taking all the revenues acquired from both operating and non-operating activities and subtracting all expenses.
Statement of cash flow
A cash flow statement provides information about all the cash inflows that a company receives from both its core operations and external sources of investments.
It involves cash generated by the firm through operations, investment, and financing-the sum of which is called “net cash flow.”
The CFO covers all transactions resulting from all operational business activities, hence making up the first section of a cash flow statement.
Cash flow from investment is the second section, and this is the result of investment gains and losses. The final section is cash flow from financing, which reports cash flows used from debt and equity.
Statement of Shareholders’ Equity
This statement aims to enable the business manager to track changes in retained earnings following dividend distributions to shareholders.
Its role is to report changes in shareholders’ accounts during the period resulting from investments by owners, distributions to owners, net income, and other comprehensive income.
This is indispensable for giving insight to supporters of the business financially. It also more deeply provides insight into a company’s performance due to the reporting of equity withdrawal and also for the declaration of dividends.
Notes to Financial Statements
Additional notes to financial statements or financial disclosures are any other notes and information provided alongside the financial statements.
These notes provide other readers with an enhanced capability to read and understand the information depicted in statements and also to evaluate the firm’s performance.
The notes typically include a summary of major accounting policies (accounting methods, methods of depreciation, and measurement methods for inventory such as LIFO or FIFO).
For instance, a note to financial statements typically contains the ‘basis for accounting’ (whether cash or accrual accounting methods were used).
Other notes will detail the process by which figures were calculated so that this increases reliability and accountability to your reports.
How financial reporting helps in business decision making?
Financial performance analysis
Financial reporting service help businesses have the overview of financial performance over time.
They will be able to spot trends and patterns and, therefore, make better decisions. Most companies track key metrics regarding revenue, profit, and cash flow to assess their position and make well-considered decisions related to budgeting, investment, and business expansion.
Compliance
Financial reporting services provide the source through which compliance with accounting standards, laws, and regulations is assured.
Following such standards and regulations would make sure a company would be exempted from any form of lawsuits coupled with possible financial penalties, hence maintaining trust in it by investors, customers, or any other stakeholders.
Transparency
Financial reporting services are assumed to give transparency and accountability since the stakeholders will have a clear notion of financial information.
True companies that offer transparent financial reporting enhance the confidence of investors and other stakeholders resulting in better investment opportunities and stronger relationships
Benchmarking
Financial report services can help the companies benchmark their financial performance with that of other companies and industry standards.
All these details can be put to work by the companies to appropriately identify their weaknesses and make better investment, pricing, and business strategies.
Strategic planning
Financial reporting services offer critical information to companies where they can develop and implement strategic plans. Companies analyze financial data and notice opportunities for growth, which enables them to assess risks and make decisions on resource allocation.
Conclusion
Financial reporting services are critically important to any business as they enable companies to keep tab on their financial performance, trace trends, and take appropriate decisions in time.
Hence, financial reporting services are indispensable for any organization that aims to succeed in today’s highly competitive business environment.