Financial reporting (definition)
The objective of financial reporting is to track, analyze and report your business income. The purpose of these reports is to examine resource usage, cash flow, business performance and the financial health of the business. This helps you and your investors make informed decisions about how to manage the business.
There are three main goals of financial reporting:
1. Provide information to investors
Investors will want to know how cash is being reinvested in the business, and how efficiently capital is being used. Financial reporting helps investors decide whether your business is a good place for their cash.
2. Track cash flow
Where is your business’s money coming from? Where is it going? Is the business making a profit or a loss? These answers are important to know – they show how well your business is performing, and whether it can cover its debts and continue to grow.
3. Analyze assets, liabilities and owner's equity
By monitoring these, and any changes to them, you can work out what to expect in the future, and what you can change now to prepare. This also shows the availability of resources for future growth.
Financial reports adhere to a group of taxation, accounting and legal requirements, called the International Financial Reporting Standards. This is so a business’s finances can be understood all over the world – a necessity with the increase of global companies and international shareholders.
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Disclaimer: This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.