What Financial Statements Do Investors Want to See?

“More than 90% of the investors directly depend on the financial statements of a company before investing.”

These documents are proof of the company’s growth and a major factor in disclosing its internal workings. And opposite to this, Investors who consider these as just numbers on paper often end up with a loss. 

To firm your belief, let’s take a real life example – Zoom Video Communications.

The company grew remarkably from 2019, before which most of the population was unaware of their app. When it launched its IPO in 2019, the disclosed financial reports revealed its continuous growth, strong positions, and barely any debt. 

This transparency attracted investors, and Zoom achieved considerable growth. And surprisingly, this all happened before the lockdown.   

And this is just one of the small growths that were relying on the financial reports!

Financial statements are not just the backbone of the investment factors, but are a real analysis of a company depicting its current position, stability, and the way it manages its resources. 

So, if you want to know its real importance, you are at the right place. This explicit guide lets you explore those three essential financial statements that investors look for. 

The Three Essential Financial Statements

Every investor wants to get comforted by every data that may influence their investment in any way. Hence, look for :

“The three major pillars of a financial analysis – the income statement, balance sheet, and cash flow statement.”

When combined together, these documents can help you get a complete idea of the company’s financial health. Let’s take a specific overview of what these documents reveal:

• The income statement specifically shows the profits. 
• The balance sheet gives an idea about how stable it is. 
• The cash flow statement discloses the liquidity that signifies its operational efficiency.

These documents are barely seen separately. Rather, the three help to show the company’s financial story. Let’s break down these statements – 

Income Statement: Profitability and Growth Trends

Every investor must have heard of a common term – profit and loss statement. In every aspect of finance, this report is used to get a complete analysis of the revenue and profits. And this is what an Income Statement is. 

To get a more detailed analysis, investors look for indicators such as gross profit margin, EBITDA, and net income. Understanding these is like getting an answer to the questions – Is the company able to make profits through its sales? If yes, then how much?

• Note: EBITDA is the total earnings of a company without including interest, taxes, depreciation, and amortization. 

Investors love to find both the rising graph and consistency. A mixture of both is most probably a good to go option. 

Balance Sheet: Financial Stability and Asset Management

The strength of the performance shown in the income statement is reflected by the balance sheet. It simply lets you know the assets they have, liabilities and the distributed equity with shareholders at a given time.

It helps to assess the present situation of the company – Financial Stability, how much the company owns versus how much it owes, which includes Long-term debt levels.

For instance, 

Apple Inc. has a huge cash reserve which attracts investors. As who will not love to be under a safety net. Even in harsh market conditions, the company can survive and bring innovations with collected funds. 

A healthy balance sheet shows discipline and execution of strategies. 

Cash Flow Statement: Operational Efficiency and Liquidity

“Profits are opinions, but cash is a fact.”

This is a famous saying in finance, and is a practical statement. On its basis, cash flow statements show the distribution of cash in various functionalities of an operation, such as investing and finance. 

A fraud company may show fake profits on paper, which can be disclosed with this statement. If it is not generating the mentioned revenue, it’s a big red flag. 

Investors look for positive cash flow. As many startups fail not due to lack of profits, but because they run out of cash. This is what liquidity maintains to keep the brand running in every situation. 

Quality of Financial Reporting and Professional Standards

Investors run behind numbers, and no doubt they matter the most for making an investment. But above this, how the numbers are shown matters the same. 

Some of the popular accounting services, such as CSBGroup accounting services can help you achieve it. They will ensure the required accounting support, transparency, and compliance with GAAP and IFRS. 

High quality reporting gains trust and increases real world value with huge investments. It assures investors that the company’s success is directed by real performance, not creative accounting. 

Audit, Assurance, and the Language of Trust

Audited financial statements adds credibility and bring confidence to invest – Transparent audits with proper payroll management align with investors’ professional standards. 

Concluding, when financial statements are supported with integrity, accuracy, and justifiable assurance – they form a perfect bridge between the investor and the businesses. 

To support this, it has been found that nearly 60% of investors have withdrawn or avoided investments due to poor financial transparency, highlighting that trust in financial reporting is valuable as profits.

In the investment world, trust built on clear and honest financial statements isn’t just valuable — it’s everything.

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