There are five types of financial reporting statements that a company’s accountant prepares. Each tells about a different and important piece of a company’s financial health. These statements are the balance sheet, income statement, cash-flow statement and the statement of shareholder’s equity, followed by any footnotes to financial statements.

Financial statements provide a snapshot of the performance, financial position and cash flows of a business. These documents are reviewed by investors, lenders, creditors and management to evaluate a company.

Benefits of Financial Reporting

There are many benefits of financial reporting, which is why a company should want to keep detailed and accurate financial statements. For one, there are financial reporting requirements if your company is a publicly held company with investors and shareholders. For another, if you pay taxes to the Internal Revenue Service, you’re going to have to share lots of information about your income, expenses, debts and other information about your assets and liabilities.

Some research suggest that by analyzing data from financial statements, company management can make more informed decisions in running the organization and boost marketing productivity by up to 20%. Based on the fact that companies around the world spend a total of about $1 trillion every year on marketing, that can add up to about $200 billion. Increased productivity is certainly one of the many advantages of financial statements that make it worth paying attention to the information provided in them.

General Benefits of Financial Statements

Other than the legal ramifications of not keeping good books, there are many other benefits of financial reporting that financial statements provide to the long-term health and growth of a company. Each has its own role to play in the snapshot it offers.

Better debt management. The amount of debt your company carries and in what form is an important measure of the financial health of your company. Financial statements separate your assets from liabilities and give you a picture of what you owe versus what you are bringing in.

One of the advantages of financial statements is knowing what your liquid assets are so you can help you manage those debts you have – and pay off the highest-cost liabilities first.

Identifying trends. Financial statements help a company's management take a quick and detailed look at the ways in which they have been doing business over a period of time, as well as to identify any past or present trends that can either lead to problems down the road and need to be tackled right away. They can also be used to to identify sales and growth trends that could lead to increased profitability.

Progress tracking in real time. Financial Statements are designed to be fluid documents that change many times over the course of a reporting period, depending on many different income and expense factors. Therefore, paying close attention to statements such as the balance sheet can make it easier to make important decisions while things are happening, rather than having to retroactively respond to receiving bad news later on.

Managing liabilities. Every business has liabilities ranging from business loans to credit cards to vendor accounts and other accounts payable. It’s always a good idea to have this information available, and if you apply for most loans or lines of credit, it’s usually expected that you will have this information available quickly and in an easy-to-read format.

Progress and compliance. Another of the many advantages of financial statements is that by having a series of accurate financial documents, it will be much easier for you to gauge whether or not your business is making progress or falling behind.

In addition, if the company is ever audited, the first thing an accountant will ask for are the company’s financial statements to stay in compliance with Generally Accepted Auditing Standards that govern their industry.

What’s more, they are bound to financial reporting requirements required by law to report if your documents are not up to standards. That can look bad to government regulators and investors.

Benefits of Individual Statements

There are many different benefits of financial reporting that each of the five financial statements can provide to management.

Income statement. The income statement is the most important of the financial statements, because it reveals dirty truths about the financial performance of a company for a given reporting period. Beginning with sales, it then subtracts expenses and arrives at a net profit or loss, and in the case of publicly reported companies, an earnings-per-share figure for investors.

An income statement can reveal reasons for business growth, and can for instance reveal an increase or decrease in sales for the period reviewed, and whether you are able to control the expense side of your business.

It can signal efficient management and give investors a good clue as to how solid the company may (or may not) be.

Statement of retained earnings. If the income statement measures financial health at any given moment, this document offers the information over time. It’s an important document for management and investors who want to know if they are making or losing money, so the statement reconciles the beginning and ending retained earnings for the period (for instance, over a year or so), using information such as net income from the other financial statements.

The statement of retained earnings is generally used as a marker to help analyze the health of a company, and can help improve market and investor confidence.

Balance sheet. This report shows the financial position of a business as of the report date. Like the income statement, it’s a snapshot of financial performance at a given moment because it can change daily or hourly depending on circumstances. The information is divided into the general classifications of assets, liabilities and equity, and both sides of the equation must always balance.

The balance sheet is a great tool because it gives you important information in real time, and changes depending on many different factors including increases in sales, income and liabilities.

It is one of the many advantages of financial statements that can give you vital information to help you make decisions right away that can affect the financial health of your company.

Statement of Shareholder’s Equity. This document helps give investors information on their equity investment in your company, by using several metrics that measure profitability, liquidity and efficiency. It helps show how well the company manages debt and assets, and whether it can continue to generate income and grow using current assets - or whether it will need to go into further debt to remain profitable.

Footnotes to Financial Statements. This isn’t as much a document as it is extra information that is added in case investors may need extra details, like how the financial statements were prepared, for instance.

It’s a supplement that can help explain information that isn’t in the main document, such as irregularities in income, or provide clarity about other information.

An auditor, for instance, is required by financial reporting requirements and law to include in their final report that the audit was conducted using Generally Accepted Auditing Standards (GAAP). If the accountants that prepare financial reports for your company follow the same standards, and say so in the documents, then it makes it easier for the auditors to do their jobs.