Financial statements are annual reports that a company prepares in order to help potential investors and creditors understand the company’s financial health. The statements give a detailed breakdown of the company’s assets, liabilities, and net worth, as well as its revenues, expenses, and profits. They can also be used to compare how the company is doing over a period of time. 

The main components of Financial statements are profit and loss account and Balance sheet. The profit and loss account shows revenues from sales, other operating income, expenses such as cost of goods sold, depreciation, taxes. The balance sheet gives a view about assets like cash on hand, fixed assets (building), current assets (cash until used) and liabilities which includes tax payable. Another key component is equity which represents the owners loaned capital plus retained earnings.

Financial statements are used to help you understand a company’s financial health. They are also used as a tool to analyze how well a business is doing and make decisions about whether it should be acquired or not. Financial statements do this in one of two ways – by showing total revenues, expenses, and profits for the past year, or by showing projected revenues, expenses, and profits for the next year.

Financial statements do tend to be quite lengthy and wordy so understanding them can be difficult for some people. To make things easier you should have a good understanding of basic business terms such as gross profit margin or net profit margin. As your accountants we will make sure you understand your business numbers and its performance. 

If you run a Limited company, you are required to submit your annual financial statements showing true and fair position of your business with Companies and HMRC with in 9 months of your year end.