Financial statements are records that outline the financial activities of a business, individual, or any other entity. Corporations report financial statements following Generally Accepted Accounting Principles (GAAP). The rules about how financial statements should be put together are set by the Financial Accounting Standards Board (FASB).

Companies generally submit three forms of financial statements. The information contained in these statements, and how this information fluctuates across periods, is very telling for investors and government regulatory agencies. These three financial statements are:

The income statement: This gives an account of what the company sold and spent in the year. The balance sheet: This is a financial snapshot of what the company owns (assets), what it owes (liabilities), and its worth free and clear of debt (or the value of its equity). The cash flow statement: It tells what transactions went into and came out of the company in the form of cash. Boundless Business, Ratio Analysis and Statements, 2018.

How does thoroughly analyzing financial information help companies make good business decisions?