Reports of a Company? Why should it concern me 😒

The result of putting the financial books together gives financial statement

Financial report shows the financial summary of an organization in a given period either monthly, quarterly, semiannually or annually.

It is the product of an account process.

It is also known as the financial statement.

Annual report usually captures financial and nonfinancial reports.

Nature of financial report

1. It is usually historical in nature; this can be misleading in some instances say one needs to get the current value of an asset, this is not shown in the report as only the old value is available.
2. It shows transactions that are expressed in monetary terms
3. It records only financial transactions
4. It is usually based on certain accounting concepts, convention, and principles

Remember, you can not value a company based on financial report alone because financial report gives only baseline value of the company.

 Companies are valued based on projection e.g. projected cash flow                                                                                                                                       

How to value a company

1. Book value
2. Market value
3. Discounted cash flow
4. Liquidation value

Objectives of Financial report

• Assist management in taking effective decisions relating to the company’s overall strategy and objective
• To determine the current position of the company
• Helps to facilitate statutory audit
• It discloses information about the entity’s economic resources

Who is responsible for preparing financial statements?

• Management/ directors are the key participants in the financial reporting supply chain
• Management prepares the report
• Directors approve the prepared report
• External auditors crosscheck the report
• Stakeholders make decisions based on the financial report

Characteristics of an ideal financial report

• Relevance
• Understandability
• Reliable
• Comparability

Some elements of financial report

• Liability
• Equity
• Expense
• Income

Limitation of financial report

• The report usually provides aggregate information
• The report does not consider the effects of inflation
• The report is usually prepared under certain assumptions
• This report usually does not cover non-financial issues and this is actually an important part in considering whether or not to invest in that company

Accounts are prepared with the company based on going concerns

In a financial statement report and in finance. There are terms I would call ratio which are important and helps shows the situation of the entity/ company in view and some of these are

1. Liquidity ratio: this determines how liquid a company is which means how fast can they fulfill their short-term obligations
2. Leverage or gearing ratio; can this company we are considering able to meet its long-term obligation?
3. Activity ratio: what is the activity form of the company like. Are the assets which they have being used effectively?
4. Profitability ratio; how profitable Is this company
5. Investor ration

To answer the question of why financial report is important; it is important because investing is a decision most adult humans take and the understanding of the books of companies helps in making this decision a profitable one.