Summary of financial reporting objectives
Financial reporting offers plenty of benefits and objectives for businesses, helping to track, analyse and report income. Here are the main four goals as to why you may use financial reports:
- To provide information to investors – investors want to know the return on their investment whilst potential investors want to know how a company has performed before they invest their funds.
- To track business cash flow – financial reporting shows different stakeholders where cash is coming and going from.
- To report on accounting policies – different companies have different accounting policies, financial reports allow investors and stakeholders to compare these policies.
- To enable the analysis of assets and more – financial reporting highlights any changes in a company's assets, liabilities and equity, allowing these to be analysed.
In simple terms, financial reporting is a comprehensive review of your company’s financial data over a specified period. It involves tracking, analysing and reporting on multiple financial objectives and targets and is generally done monthly, quarterly or annually. Financial reporting needs to be timely and accurate for stakeholders to fully understand company performance and identify growth opportunities or potential threats to the business.
To meet their financial reporting objectives companies will normally produce the following reports:
- Balance sheet
- Profit and loss statement
- Cash flow statement
- Statement of changes in equity
These financial reports should all comply with internationally recognised accounting rules. Read more in this article What are the International Financial Reporting Standards (IFRS) and why are they important?
How financial reporting helps with tracking cashflow
One of the key objectives of financial reporting is to help finance, board members and department heads to make strategic decisions about how to run and grow their business. For example, cashflow is one of the most important key performance indicators (KPIs) for measuring the financial health of a business.Cashflow forecasting software allows finance and management teams to track and analyse cash inflows and outflows to identify current and future cash flow risks.
This helps ensure the business has sufficient cashflow to cover its costs and debts. A strong cashflow position is also one indicator that the business has the potential to grow and can take advantage of opportunities when they arise.
Read our article about how bank reconciliation statements can help you manage cashflow and avoid the fees or penalties your bank might add to your account (one of the main objectives of financial reporting).
One of the key roles of financial reporting is to produce information for investors
One of the key financial reporting objectives is to enable investors to make informed decisions about the business. It gives them a view of the overall financial health of the business. For example, they can assess:
- How capital and other resources are being used
- If the company is being run efficiently
- If the business is making a profit or loss
- How the company is performing against industry benchmarks.
Access to accurate and complete financial data helps build investor trust in a business and provides essential insights into the company’s performance and direction. One of the key roles of finance teams is to produce financial reporting and proactively communicate with their investors and other external stakeholders.
Investors also use financial reporting for analysing assets, equity etc.
Investors will also need to analyse a company’s assets, liabilities and owner's equity. This monitoring alerts investors to potential risks. It also helps them to assess the company’s growth potential.
Many external investors use Private Equity Accounting Software to help ensure consistent financial reporting and consolidation across a diverse portfolio of companies.
