Financial statements communicate the results of company activities for the period. A company creates periodic financial statements for managers, owners and creditors. These financial statements provide the users with information regarding the company’s performance, allowing the users to analyze the numbers and make decisions. The company’s accounting staff creates financial statements and releases this information at regular intervals, usually quarterly or annually. Publishing this data at periodic intervals serves several important purposes for the users.
The user's need for financial statements involves knowing the company’s financial results for the most recent period. This allows the users to form an opinion regarding the company’s financial position for the period and the profits it earned. The users calculate financial ratios based on these financial statements and use these results to make decisions regarding extending credit or investing funds. Managers use these financial statements to evaluate their performance for the period and consider potential actions to improve the results.
One important use of periodic reporting revolves around the user’s ability to analyze trends. Trend analysis considers financial results over several periods. In order for trend analysis to be useful, the financial reports need to include data for similar periods. For example, quarterly reports need to continue reporting on a quarterly basis, maintaining the same trends. This allows the user to compare results from one three-month period to another three-month period. The user also wants to consider any seasonality regarding trends. If the user considers quarterly reports, she should use reports from the same three months each year.
Another important use of periodic reporting involves the continuously updated information. Users reap the most benefits by relying on information reported in the most current financial statements released by the company. Changes occur in economic conditions, company strategies and management personnel, which impact the current and future financial results. The most current financial statements include the most updated information and consider the impact realized through these changes.
Periodic reporting allows users to compare financial statements among companies. Most companies maintain a schedule of quarterly or annual reporting. When a creditor or investor wants to compare the financial results from one company to another, a similar reporting schedule allows the user to compare results using similar parameters. For example, if one company reports annually and another monthly, the user cannot compare the statements.
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