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A financial statement is a document that details the financial situation and performance of an organization during a specific time period. Investors, creditors, and other stakeholders evaluate an organization's financial health and stability, as well as its capacity to produce revenue and control costs, using financial statements.
The balance sheet, the cash flow statement, and the income statement are the three main financial statements. Different details on the financial position and performance of a company are provided by each statement.
An organization's sales, costs, and net income for a specific time period are displayed on the income statement, sometimes called the profit and loss statement. It offers details about a company's profitability, capacity for bringing in money, and control over spending.
Assets, liabilities, and equity of a company are displayed on the balance sheet at a particular period. It gives details on a company's financial situation, including details about its capacity to pay bills and make investments in its business.
A company's cash inflow and outflow during a specific time period are depicted in the cash flow statement. It offers details on a company's liquidity, including its capacity to earn cash from activities and fulfill its financial commitments.
Investors and other stakeholders need financial statements in order to make informed judgments about the financial health and future prospects of a business. They offer a systematic method of evaluating the financial position and performance of a business and can be used to spot patterns and potential threats. Financial statements are necessary by law for publicly traded organizations and are also crucial for regulatory compliance.
