Fiscal year-end statements enable investors to distinguish between companies that follow clean, law-abiding procedures from those with poor operating records. These reports also provide insight into how publicly listed companies conform to laws and regulations. Fiscal year-end statements include a balance sheet, an income statement, a cash-flow statement and an equity report.
In modern economies, corporate leadership understands that inaccurate balance-sheet data may generate uneasiness in the investment community. This is especially true if a company experiences financial distress or if the economy is bad. In fiscal year-end balance sheets, accounting supervisors indicate to the public whether the company is solvent. Specifically, they show corporate assets, liabilities and net worth at the end of the fiscal year. Net worth, a measure of solvency, equals assets minus liabilities.
A fiscal year-end income statement includes corporate revenues, expenses and net income. Reviewing a company’s year-end income statement helps corporate financiers evaluate how the company uses its resources to increase sales. Some investors review year-end income statements of all companies in a sector to determine whether the sector is struggling or gaining strength.
An annual cash-flow statement shows how, when and where a company spends corporate funds. It provides detailed information about three transaction groups: operating, investing and financing. Operating activities include paying salaries and receiving customer payments. Investing is the purchase of long-term assets, like equipment and machinery. Financing activities indicate how organizations raise cash and fund their operations.
Shareholders’ Equity Statement
A shareholders’ equity statement is also known as a retained-earnings statement or equity summary. It shows dividend payments, stock sale proceeds and retained earnings. Accumulated earnings sum up net income that the company has not paid out as dividends over the years.