The four basic financial statements are income statement, retained earnings statement, balance sheet, and statement of cash flow. Each of these statements has specific value for internal and external users to use them for. These statements can help a company determine how well they are doing in the market. By evaluating the information given in these statements there may even show potential for a company to grow.
The income statement shows a company’s revenues, income, and expenses. With this statement the company can determine what their net worth is and determine if they are earning income or if they are losing money. The retained earnings statement uses the net income found from the income statement, and shows what portions of that income the company will retain for its expansion and what portion of that income it will distribute to shareholders. A balance sheet covers assets and liabilities such as creditor loans. In the balance sheet assets must balance with liabilities. Finally, the statement of cash flow covers a company’s income and expenses and shows where cash was obtained, either through general revenue from sales or loans from creditors, and it also covers how the cash was used during a period of time.
These statements may be useful to managers and employees in several ways. If managers hold stock within the company they would be interested in maintaining a higher profit margin in order to keep their stock up. They can use the information to help determine what employees can earn, what areas within the business need more or less employees, and can help with projecting future net worth. The financial statements allow a company to understand where it’s strong and weak points are and can help them determine an effective budget so they can optimize the company in several ways. * External users such as investors and creditors can use a