Definition of Corporate Financial Reporting

by Marquis Codjia; Updated September 26, 2017
Corporate financial reporting helps investors gauge a firm's profitability.

Corporate financial reporting is an essential activity in the modern-day economic landscape. In a business environment replete with bankruptcy news, lenders and investors pay attention to financial reports to distinguish companies experiencing economic distress from those that are profitable. These statements also help corporate leadership prevent losses resulting from litigation in case of inaccurate reporting.

Identification

Corporate financial reporting is a series of activities that allows companies to record operating data and report accurate accounting statements at the end of each month and quarter, according to Duke University's The Fuqua School of Business. Bookkeepers record operating data by debiting and crediting financial accounts. Accountants prepare financial statements in accordance with corporate policies, industry practices and regulatory guidelines.

Significance

Corporate financial reporting is an important function because it enables organizations to present accurate accounting statements, according to accounting lecturers David J. Emerson and Khondkar E. Karim of Rochester Institute of Technology and audit professor Robert Rutledge of Texas State University. This practice helps firms conform to international financial reporting standards and U.S. generally accepted accounting principles.

Report Types

Within a corporate context, financial reporting covers four types of accounting data sets. These include a balance sheet, a statement of profit and loss, a statement of cash flows and a statement of retained earnings.

Balance Sheet

A corporate balance sheet is also known as a statement of financial condition or statement of financial position. It provides information about a company's assets, liabilities and equity capital. Assets are economic resources that a company owns. Liabilities are debts an organization must repay. Equity capital represents funds that financial market participants invest in a company.

Income Statement

An organization's income statement is an important report on which investors, financial analysts and corporate business partners rely to gauge a company's economic health. A treasure trove of corporate information, this statement provides data on a firm's expenses and revenues, indicating whether the firm is profitable or not. A company's business partners include suppliers, customers and lenders.

Cash Flow Statement

A cash flow statement indicates liquidity movements within a company's operations. In other words, the report tells the tale of the company's cash payments and receipts over a period of time. The statement indicates (in this order): cash flows from operating activities, cash flows from investing activities and cash flows from financing activities.

Equity Statement

Also known as a statement of retained earnings, a corporate equity statement provides insight into the ownership of a company. In short, the report helps identify who owns the company. Corporate owners are also referred to as shareholders or equity holders. They receive periodic dividend payments and make profits when share prices increase. A typical equity statement indicates retained earnings — that is, the portion of corporate income not distributed to shareholders, dividend payments and equity shares.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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