Financial Statements: “Must Have” Decision-Making Tools

February 14, 2024
Business Meeting

Financial statements are the records of the financial activities and performance of a business. They provide information about the income, expenses, assets, liabilities, and equity of the business.

Article by: Accounting RFS (ARFS) Inc. Time to read: 3 minutes

Financial statements are essential tools for decision-making for managers and business owners, as they help them to:

– Evaluate the profitability and efficiency of the business

– Monitor the cash flow and liquidity of the business

– Assess the financial position and solvency of the business

– Identify the strengths and weaknesses of the business

– Compare the performance of the business with competitors and industry benchmarks

– Communicate the financial results and outlook of the business to stakeholders

– Plan and budget for the future of the business

Financial statements consist of four main components: the income statement or statement of comprehensive income, the balance sheet or statement of financial position, the statement of cash flows, and the statement of changes in equity. Each component provides different information about the financial performance and position of the business.

The income statement shows the revenues, expenses, and net income or loss of the business for a specific period. It measures how well the business generates income from its operations and how efficiently it manages its expenses.

The balance sheet shows the assets, liabilities, and equity of the business at a specific point in time. It measures how much the business owns, owes, and is worth.

The statement of cash flows shows the sources and uses of cash by the business for a specific period. It measures how well the business generates and manages its cash flow from operating, investing, and financing activities.

The statement of changes in equity shows the changes in the owners’ equity of the business for a specific period. It measures how much the owners have invested in or withdrawn from the business.

Financial statements are prepared according to generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS), depending on the jurisdiction and industry of the business. Financial statements are audited by independent external auditors to ensure their accuracy, reliability, and compliance with accounting standards.

Financial statements are vital for decision-making for managers and business owners, as they provide a comprehensive and objective picture of the financial health and performance of the business. By analysing financial statements, managers and business owners can make informed and strategic decisions to improve their business operations, profitability, growth, and sustainability.

Accounting RFS (ARFS) Inc. empowers businesses in St. Lucia and the Eastern Caribbean by streamlining accounting and financial management workflows. From bookkeeping and tax planning to financial analysis and business development, ARFS helps clients build robust financial systems tailored to their specific needs.

Before implementing any of the information presented above, consider consulting with an ARFS Finance & Accounting Professional at https://arfstrat.com/contact for specific guidance relevant to your unique business circumstances.

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