THE FOUR FINANCIAL STATEMENTS
1. THE BALANCE SHEET (aka - The Statement of Financial Condition)
2. THE INCOME STATEMENT (aka - The Profit & Loss [P & L] Statement)
3. THE STATEMENT OF RETAINED EARNINGS (aka - The Statement of Net Worth)
4. THE CASH FLOW STATEMENT
The first concept that one must understand is that all businesses must keep records of what goes on in the business for two very distinct and separate purposes. The first set of reports, called the financial statements, is basically a history of what has happened to the company in financial terms for a specified period of time. What I sometimes like to refer to as the financial road maps of corporate information, stress the importance of the types of information that they provide us. While these reports or statements are obviously invaluable to the company's management, they are mainly used by external individuals and organizations, completely apart from the company. Such individuals and organizations might be stockholders and potential investors, the S.E.C., the I.R.S., banks or other lenders, and the company's creditors. On the flip side of this are the reports that are used predominately by the company's internal management personnel to appraise and assess the success, or lack thereof, of their actions in running the company thus far and to help them make decisions that will affect the future of the company. The information that I am referring to here is known as the financial ratios. These are also used by external analysts for many of the same purposes. In these Financial Management courses, there is an extensive discussion of both the financial statements and ...