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A financial report shows the financial health of a company or organization by providing details about financial transactions during a specific time period. Most for-profit and non-profit corporations complete such a report annually. These reports can be key to securing additional financing, forming partnerships with other organizations, and establishing customer confidence.
Both an income statement and a balance sheet are typically included on a financial report. An income statement reflects all the monies collected through sales, fundraising or other activities. It may also include monies for jobs that have not yet been collected, but will be collected in the near future.
The balance sheet shows all debts owed by the company. This can include large debts requiring fixed or incremental payments; payroll responsibilities; or monthly bills associated with daily operations, such as utilities and rent. It may also include regular annual payments, such as property taxes, licensing renewal fees, or association membership fees.
Determining the financial health of a company can often be as easy as comparing its income to its outflow. In some circumstances, however, it may not be that simple. A company with few cash assets may have significant real property assets, which can be borrowed against when necessary. A company that appears to be making a profit may not be saving adequately for an upcoming balloon payment and therefore may not be as stable as it might seem at first glance. A properly-completed financial report will bring these special circumstances to light.
Another common component of a financial report is a cash flow analysis. This shows intake alongside output over shorter, recurrent periods, such as months. It demonstrates whether or not the company has enough income when it needs it in order to meet obligations such as payroll and operating expenses.
Completion of a financial report on an annual or semi-annual basis is a requirement for many companies and organizations. Publicly-traded corporations are required to submit regular financial reports to stockholders. Non-profit organizations must often provide such reports to government agencies, major donors, or funding agencies. In both cases, financial reports should always be carefully completed because they are subject to audit.
Completion of a financial report is a good business practice, even if such a report is not required by any governing entity, because it gives a clear picture of an organization's financial health. Such a report can help identify areas of waste and potential savings as well as help indicate areas of potential revenue growth. It may also be helpful in securing financing in the form of loans or investments.
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