What are the financial statements?

They are the most important documents that a company has to prepare. The economic and patrimonial situation of a company is reflected in the financial statements, is essential to know if a company is profitable or not.

The financial statements must reflect a true image of the company in a determined period with the ultimate objective of giving an overview of it.

They must be carried out following the structure dictated by the general accounting plan.

Who should be familiar with financial statements? Knowing how to build rigorous and well-designed statements is of interest to any financial analyst, consultant, advisor, professionals who work in financial departments, and in general anyone who has an interest in acquiring a financial vision of the company. It is important to know that many strategic decisions of a company are based on financial statements.

There are 3 types of financial statements:

  1. Balance Sheet
  2. Income Statement (P&L)
  3. Cash Flow Statements

A continuación os mostramos un vídeo explicativo de estos 3 tipos:

1. Balance:

It is the financial statement that shows the situation of the company at a specific time. It is a photograph of the economic moment.

It is the summary of the assets, liabilities, and equity of the shareholders. The equation to keep in mind Assets = Liabilities + Equity.

  • The asset: it is divided into current and non-current assets.
  • Non-current assets: refers to the assets that will be part of the equity for a minimum period of one year. Includes real estate, long-term financial investments, or machinery.
  • Current assets: are those that will be part of the equity for less than 12 months. Includes cash, inventory, or accounts receivable.
  • The liability: is divided into a current (short-term debt) and non-current (long-term debt).
  • Equity: Mainly includes equity

2. Income Statement:

It is the statement that reports the result of the management of the company as a result of ordinary operations (income and expenses). To prepare the income statement, all income, expenses, and other items such as amortization, interest, and taxes are broken down in detail until reaching the final net income for the year.

If during that period the net income exceeds the expenses, your company will have obtained profits (positive balance). When the opposite happens, it means that you are entering a loss (negative balance).

3. Cash Flow Statements:

All the cash variations that have been made in the company are shown.

Cash flow shows what the company reports in terms of cash. To calculate it, concepts such as the variation in working capital or investments are taken into account.

The importance of Cash Flow is that it allows us to quickly know the liquidity of the company, providing key information when making strategic decisions

In short, the performance of a company is known through the analysis of its financial statements, as if it were an X-ray.

The financial statements include all financial, economic, and accounting data on past activities and allow the future of the organization to be projected with greater certainty.