What do you mean by corporate financial statements?

The corporate financial statements are the financial reports or formal record of the financial and business activities of a firm. The corporate financial statements actually give a summary of the financial condition and profitability of the firm in both long and short term. The corporate financial statements are generally complex in nature as they contain analysis and discussion on the management decisions and financial statement notes. The financial statement notes define each and every item in the balance sheet besides describing cash flow statement and income statement in details.

The data in various types of financial statements illustrate the financial performance of a corporation. Justify this statement.

The financial statements most commonly used by corporations are the balance sheet, income statement, cash flow statement, and statement of owner's equity. The data in these statements illustrate the financial performance of a corporation. Financial statements are not only important to corporate managers but investors, government agencies and employees.

Balance Sheet

The balance sheet is a report of the assets, liabilities and stockholder equity of a corporation. The balance sheet is also commonly known as the statement of financial position and provides information about the type and size of investments in the corporation, debts, and the net value of owner equity. The balance sheet helps stakeholders predict future cash flows.

Income Statement

The income statement is also called the statement of earnings and discusses whether the corporation is making money. The income statement helps the stakeholders of the corporation determine how the corporation has performed in the past, which forms a basis for projecting future performance. The income statement also measures revenue, expenses, losses and gains, which helps investors and creditors gauge the risk of investing in a particular corporation.

Cash Flow Statement

The cash flow statement is a report on the money used to fund corporate operations, financing activities and investments during the accounting period. Operations involve transactions that increase or decrease net income. Financing cash flows involve money the corporation receives form owners or from lenders to finance expenses for the corporation. Cash from investments includes proceeds from selling investments, making or collecting on loans, and buying land or equipment.

Statement of Owner's Equity

For a corporation, the statement of owner's equity is also called stockholder's equity and contains three primary parts: capital stock, additional paid-in capital and retained earnings. Capital stock is the value of issued shares of stock and additional paid-in stock is the excess money paid over the value of issued shares of stock. Retained earnings are the earnings the corporation generates but does not distribute to shareholders.

The users of financial statements are people and institutions use financial statements for a large variety of business purposes and their ability to understand and analyze financial statements helps them to success in the business world. Justify this statement in your own words.

Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." There are different kinds of users of financial statements . The users of financial statements may be inside or outside the business. The users of financial statements are people and institutions use financial statements for a large variety of business purposes and their ability to understand and analyze financial statements helps them to success in the business world. The various users of financial statements are classified and detailed as follows: 1. Internal Users The internal users of financial statements are the individuals who have direct bearing with the organization. Managers and Owners: For the smooth operation of the organization, the managers and owners need the financial reports essential to make business decisions. So as to provide a more comprehensive view of the financial position of an organization, financial analysis is performed with the information supplied in the financial statements. The financial statement is used to formulate contractual terms between the company and other organizations. A variable of the financial statement like the current debt to equity ratio is important in deciding the amount of long term capital that would be required to be raised. The financial statements of other companies can also provide investment solutions to different companies. Sometimes it becomes difficult to decide the right field in which financial resources may be channelised. In such situations the financial statements of other companies provide the appropriate guideline. Employees: The financial reports or the financial statements are of immense use to the employees of the company for making collective bargaining agreements. Such statements are used for discussing matters of promotion, rankings and salary hike. 2. External Users

Institutional investors: The external users of financial statements are basically the investors who use the financial statements to assess the financial strength of a company. This would help them to make logical investment decisions.

Financial Institutions: The users of financial statements are also the different financial institutions like banks and other lending institutions who decide whether to help the company withworking capital or to issue debt security to them.

Government: The financial statements of different companies are also used by the government to analyze whether the tax paid by them is accurate and is in line with their financial strength. Vendors: The vendors who extend credit to a business require financial statements to assess the creditworthiness of the business. General Mass and Media The common people as well as media are also the users of financial statements.

Here is a brief list of users of financial statements:

1. Existing equity investors and lenders, to monitor their investments and to evaluate the performance of management. 2. Prospective equity investors and lenders, to decide whether or not to invest. 3. Investment analysts, money managers, and stockbrokers, to make buy/sell/hold recommendations to their clients. 4. Rating agencies (such as Moody's, Standard & Poor's, and Dun & Bradstreet), to assign credit ratings. 5. Major customers and suppliers, to evaluate the financial strength and staying power of the company as a dependable resource for their business. 6. Labor unions, to gauge how much of a pay increase a company is able to afford in upcoming labor negotiations. 7. Boards of directors, to review the performance of management. 8. Management, to assess its own performance. 9. Corporate raiders, to seek hidden value in companies with under priced stock. 10. Competitors, to benchmark their own financial results. 11. Potential competitors, to assess how profitable it may be to enter an industry. 12. Government agencies responsible for taxing, regulating, or investigating the company. 13. Politicians, lobbyists, issue groups, consumer advocates, environmentalists, think tanks, foundations, media reporters, and others who are supporting or opposing any particular public issue the company's actions affect. 14. Actual or potential joint venture partners, franchisors or franchisees, and other business interests who need to know about the company and its financial situation.