If one wants to know the health of a company then looking into the financial statements of a company can give a fair idea about the company. In simple words financial statements are the report card through which one can know how the company has performed. There are three types of financial statements
1. Balance Sheet – Balance sheet is one which shows the assets and liabilities of the company at a particular date. In balance sheet assets are segregated into long term and short term, similarly liabilities are divided into short term and long term liabilities.
2. Profit and Loss account or Income Statement – Profit and loss account shows the profit or loss made by a company during the financial year. It is calculated after taking into all revenues and expense which the company has made during the financial year. After deducting expenses from revenues tax is deducted in order to arrive at the net profit made by the company.
3. Cash Flow Statement – This statement shows the final available cash balance at the end of a certain period. It depicts the liquidity position of the company. The statement of cash flow is further divided into cash flows from operating activities, cash flows from investing activities and cash flows from financing activities.
A detailed analysis of above three statements can be very useful, if an individual wants to know the financial position of the company.