A statement of financial performance is an accounting summary that details a business organization's revenues, expenses and net income. A statement of financial performance is also referred to as statement of profit and loss or statement of income. A corporation may prepare a statement of financial performance on a monthly, quarterly or annual basis.
A statement of financial performance allows a company's top management to identify major revenue and expense items that affect the company's "bottom line", or net income. For example, Mr. Y., a chief financial officer at Company A, a large tire manufacturer in Michigan, may review the corporation's statement of financial performance for the months of June, September and November to understand sales revenue levels and what expense items increase based on seasonal business demands.
A statement of financial performance provides significant insight into an organization's profitability. A statement of financial performance also helps an investor, a lender or a regulator gauge a corporation's economic standing. For example, Company A applies for a $10 million loan with a local bank. The bank's credit officer may review Company A's statement of financial performance over a 5-year period to gauge profitability levels or sales trends and ensures that Company A will have available cash to repay the loan.
A corporation's accounting department may prepare a statement of financial performance at any given point in time or throughout the year, depending on business requirements. For example, top management of our sample company (Company A) may ask the accounting manager to prepare a statement of financial performance for the last two weeks of July and the first three weeks of November to understand what factors affect sales and whether sales are seasonal.
A statement of financial performance provides important details about a corporation's revenues. Revenues represent income that a company earns during a period. They may include sales, interest income and gains on short-term investments. A revenue may be a short-term item if it is earned in a year or less, or a long-term item if it is earned after a year. For example, Company A's short-term revenues may include sales and interest income, while long-term revenues may include interest income (from a corporate savings account) that is earned in fourteen months.
A statement of financial performance also provides details about a corporation's expenses. Expenses represent costs that a company incurs during a period. They may include cost of sales, interest expense and losses on short-term investments. An expense may be a short-term item if it is due in a year or less, or a long-term item if it is due after a year. For example, Company A's short-term expenses may include cost of sales and interest expense.
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