The income statement, balance sheet, and statement of cash flows are essential documents that report the financial information about the company. The three statements are usually used together to illustrate the various financial elements. For instance, the income statement generally concerns the overall profits over a certain period (Zarzycki, 2019). Consequently, the balance sheet represents the financial state of the company, including assets and liabilities, at the end of the financial period (McInnis, 2021). Lastly, the cash flow statement reports the quantity of cash – or the actual money – flowing in and out of the organization (Warnes, 2021). This information is highly useful for investors and owners and might help them make weighted decisions. Ultimately, all three statements are valuable documents that indicate the financial health of the company.
However, in my opinion, the most important report is the income statement. Unlike balance sheets and cash flow documents, the income statement reveals information about the profits or losses of the company. Therefore, financial analysts might use the acquired data to identify any potential weaknesses and strengths of the chosen business model. Ideally, the company wants to see revenue growth, and information about the profitability of the business is essential. Furthermore, besides the overall profitability, the income statement also transparently indicates all profits and expenses. Therefore, it is possible to use the document to adjust the costs of the assets or choose a different strategy. For instance, if the equipment expenses or marketing costs significantly exceed expectations, it might be advisable to change the financial distribution. Ultimately, the objective of business is to make a profit, and, in my opinion, the income statement is the most straightforward document that indicates the financial health of the company.
McInnis, F. (2021). Understanding a balance sheet (definition and examples). Bench. Web.
Warnes, B. (2021). Cash flow statement: Explanation and example. Bench. Web.
Zarzycki, N. (2019). Understanding an income statement (definition and examples). Bench. Web.