Financial statements are formal records that summarize a company’s financial activities and performance over a specific period. They provide essential information to stakeholders—including investors, creditors, management, and regulatory agencies—to assess the financial health, profitability, and stability of a business.

There are four primary types of financial statements:

1. Balance Sheet: Shows the company’s assets, liabilities, and equity at a specific point in time. It follows the accounting equation: Assets = Liabilities + Equity.

2. Income Statement (Profit and Loss Statement): Reports revenues, expenses, and net income over a period. It reflects the company’s profitability and operational efficiency.

3. Cash Flow Statement: Tracks the inflow and outflow of cash in operating, investing, and financing activities. It helps assess a company’s liquidity and ability to meet short-term obligations.

4. Statement of Changes in Equity: Details changes in owner’s equity during the reporting period, including profits, dividends, and capital contributions.

Financial statements are typically prepared on a monthly, quarterly, or annual basis and must comply with accounting standards such as GAAP or IFRS. They are crucial for decision-making, securing loans or investment, and maintaining regulatory compliance.

In summary, financial statements offer a clear, organized snapshot of a company’s financial performance and position.