A financial report is a summary of a company’s accounting and operational data that helps management teams make informed business decisions. It’s also a legal requirement in most countries for businesses of all sizes to comply with outside regulatory agencies, taxing authorities, and internal shareholders and lenders. Good financial reporting gets all parties on the same page with a single version of the truth, which gives credibility and value to companies and their managers.
The three main types of financial reports are income statements, balance sheets, and management’s discussion and analysis (MD&A). The income statement outlines revenues, expenses, and net profit for the previous fiscal period, while the balance sheet provides a snapshot of a company’s financial standing at a given point in time. It lists a company’s assets, liabilities, and equity in accordance with the accounting equation: Assets = Liabilities + Equity.
MD&A offers management’s perspective on the financial statements, highlighting key trends and risks, along with providing a forecast for the company’s future performance. MD&A is a critical component of the 10-Q, which public companies file with the SEC every quarter.
Financial reports also include notes and footnotes that provide additional context and detail on the financial statements, such as a description of accounting policies, contingencies, and risk management practices. These supporting documents are important for maintaining transparency and accountability, which in turn support trust among investors, creditors, and other stakeholders. Accurate and timely financial reporting also enables business leaders to take action when needed by making strategic decisions about allocating resources, assessing risks, and evaluating a company’s current health and trajectory.