Financial reporting is a key tool for businesses to communicate their performance, attract investors, and stay on top of potential compliance issues. But creating accurate and timely reports requires the right systems to collect data accurately, reduce manual effort, and automate processes.
The first section of a financial report is management’s perspective on the company’s current financial position, including liquidity and capital resources and results of operations. This is known as the MD&A (Management’s Discussion and Analysis). MD&A provides a fair and unbiased overview of the company’s past, present, and future. It includes a discussion of the underlying causes of material changes in financial statement items, significant events that have affected the business, positive and negative trends, and risks to the company’s long-term financial health.
A financial report includes a balance sheet, which shows the relationship between what a company owns (assets) and what it owes (liabilities and shareholders’ equity). Assets are grouped into categories based on their expected cash conversion or payment dates. Liabilities are categorized as either current (expected to be converted to cash or paid within one year) or noncurrent. Shareholders’ equity is calculated as the difference between a company’s assets and liabilities, plus its retained earnings.
Other forms of financial reporting include an income statement and a cash flow statement. The income statement summarizes the company’s revenues (e.g., sales) and expenses (e.g., cost of goods sold, salaries, rent) over a reporting period, using accrual accounting to match revenues and expenses regardless of when cash is received or paid. The cash flow statement analyzes the company’s net operating cash inflows and outflows (including investments, purchases of equipment and property, and financing activities).