The terms “financial report” and “financial statement” are sometimes used interchangeably, but they have very separate and distinct meanings. The term financial report is often used as an umbrella term for several types of reports. These reports can be provided to management or stakeholders of the organization and help provide information on the organization’s financial health. Financial reports gather important financial information for distribution to the public (typically this information includes financial statements such as balance sheet, income statement, statement of cash flow etc.). All financial statements are financial reports, but not all financial reports are financial statements.
Financial statements fall under the financial report umbrella. Financial statements provide specific information about the financial position of an organization (including assets, liabilities and shareholder equity), cash flow and results of operations. They are typically in a table format that has references to footnotes that explain specific detail
Financial analysis is often known by various terms including financial statement analysis, accounting analysis, or analysis of finance. The term refers to an assessment of the viability, stability, and profitability of an organization or business or even a specific segment of the business or project. Professionals may use various financial ratios to compare and analyze information incorporating the various financial statements. Ratios are important to assist in understanding the organization’s activities. However, it is critical to understand that ratios do not necessarily tell the whole story. Some ratios taken in isolation may not provide a complete story of an organization’s performance, status or efficiency. Often, an individual ratio is of more use when evaluated in-line with other ratios or trend information. In any event, for ratios to be useful and meaningful, they must be:
- Calculated using reliable, accurate financial information.
- Calculated consistently from period to period.
- Used in comparison to internal benchmarks.
- Used in comparison to other companies in your industry.
- Viewed both at a single point in time and as an indication of broad trends and issues over time.
- Carefully interpreted in the proper context, considering there are many other important factors and indicators involved in assessing performance.
Learning Objectives
- Explore and understand the difference between financial reporting and general-purpose financial statements.
- Discover and describe comparative financial statements and their use in financial statement reporting and analysis.
- Explore and evaluate various financial statement ratios and examine how to interpret ratio results.
- Identify and understand the limitations associated with using financial statement ratios.
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Prerequisites
No advanced preparation or prerequisites are required for this course.
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