Financial
reporting gives readers a summary of what happens in a company
based
purely on the numbers. The numbers that tell the tale include the
following:
✓
Assets:
The
cash, marketable securities, buildings, land, tools, equipment,
vehicles, copyrights, patents, and any
other items needed to run a
business that a company holds.
✓
Liabilities:
Money
a company owes to outsiders, such as loans, bonds,
and unpaid bills.
✓
Equity:
Money
invested in the company.
✓
Sales:
Products
or services that customers purchase.
✓
Costs
and expenses: Money
spent to operate a business, such as expenditures
for production, compensation for
employees, operation of buildings
and factories, or supplies to run the
offices.
✓
Profit
or loss: The
amount of money a company earns or loses.
✓
Cash
flow: The
amount of money that flows into and out of a business
during the time period being reported.
Without financial reporting, you’d
have no idea where a company stands
financially. Sure, you’d know how much
money the business has in its bank
accounts, but you wouldn’t know how
much is still due to come in from customers,
how much inventory is being held in
the warehouse and on the shelf,
how much the firm owes, or even how
much the firm owns. As an investor, if
you don’t know these details, you can’t
possibly make an objective decision
about whether the company is making
money and whether it’s worth investing
in the company’s future.
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