A financial report is a summary of a company’s finances, which stakeholders like managers, investors, tax authorities and creditors can use to assess past performance and future viability. Typically, it’s composed of three key documents: the balance sheet, income statement and cash flow statement.
Financial reports are essential to internal and external stakeholder decision-making. Investors, lenders and trade partners require well-presented financial information, like timely revenue data for investments or updated debt levels for credit risk assessment. Internally, executives use financial reports to identify trends and make strategic business decisions. For example, a cash flow statement analyzes inflows and outflows of cash from the company to determine whether the business has enough current assets to cover current liabilities.
Another crucial function of financial reporting is providing transparency into the company’s accounting practices. Disclosure of these policies, such as the FIFO or LIFO inventory valuation methods, allows for better comparisons between companies. It also mitigates against manipulated financial statements, such as inflating revenues or deferring expenses, which can occur if the company is not diligent in its FP&A process.
Regular and accurate financial reporting can help a business attract more investors, partners and clients. By sharing accurate and well-structured financial reports that show steady revenue growth, healthy cash reserves and responsible debt management, the company can build trust with stakeholders and secure long-term cooperation agreements. For example, a retail partner may be more likely to sign a contract with your manufacturing company if you can demonstrate that you’ve established stable and consistent revenue over the past few years.