Financial statements: an essential guide

A genuine health check for a company, financial statements show whether a business is running well by assessing its performance and financial position. They give investors, creditors and management a clear, standardised picture. Above all, they must present complex data in a way that is clear and accessible to everyone, in order to help steer the company in the right direction. Want to know more? Read on…

What is a financial statement?

Financial statements show where a company stands, how it operates and which direction it is heading in. In other words, financial statements are a set of accounting documents that summarise a company's financial position, economic performance and cash flows over a given period.

These statements are produced at the end of each financial year, often at year end, and form an essential basis for decision-makers, investors, partners and regulatory bodies. They answer key questions: is the company profitable? Is it in debt? Does it generate enough cash? Is its situation improving or deteriorating?

But be warned: a financial statement is not just a table of figures. It is a tool for analysis and decision-making. It reflects past activity, but also offers valuable indications for anticipating the future. Provided you know how to read them properly and understand what they are really telling you…

A company's main financial statements

The balance sheet

The balance sheet is a snapshot of the company at a given moment, often at the close of the financial year. It shows, on one side, what the company owns (assets) and, on the other, what it owes (liabilities). It is made up of assets (the “uses”) and liabilities (the “resources”). Assets comprise the property, rights and receivables held (cash, buildings, inventory, etc.). Liabilities include debts and loans, but also shareholders' equity. The balance between these two columns makes it possible to assess the company's financial strength.

The income statement

The income statement traces the company's economic activity over a given period, generally one year. It lists all income (the revenue generated) and expenses (the costs incurred) in order to determine the net result: profit or loss. This document shows whether the company is profitable, how it generates its revenue, and where its main areas of expenditure lie.

The cash flow statement

Less well known but just as essential, the cash flow statement tracks the movements of money into and out of the company. It distinguishes between operating, investing and financing cash flows. This document is crucial for assessing the company's ability to generate cash, regardless of its accounting profitability.

The notes to the accounts

The notes complete the other financial statements by providing explanations and details on the accounting methods used, the valuation rules, or certain key figures. They may also contain information on off-balance-sheet commitments, ongoing disputes or exceptional transactions. The notes play a transparency role: they help readers better understand the company's choices and put the figures in context.

Regulatory framework and obligations

Financial statements are not just internal management tools. They are also governed by strict rules, to ensure the transparency, comparability and reliability of accounting information. These rules vary according to the size of the company, its legal status and its international environment.

French accounting standards vs IFRS

In France, companies must comply with the Plan Comptable Général (PCG), which sets out the rules for presenting and recording accounting transactions. These national standards require a precise structure for financial statements, in particular for the balance sheet, the income statement and the notes.

But as soon as a company operates in an international context, for example if it is listed on a stock exchange or is part of a global group, it may be required to apply IFRS (International Financial Reporting Standards). These standards, developed by the IASB, aim to harmonise the presentation of financial statements worldwide.

French standards are generally more conservative and focused on compliance with tax rules. IFRS, on the other hand, emphasise a faithful representation of economic reality, with more flexibility in the valuation of assets, provisions and complex contracts.

Publishing financial statements: who is affected?

Not all companies are subject to the same obligations when it comes to publishing their accounts. In France, the law requires commercial companies (such as SARL, SAS or SA) to produce their financial statements each year and file them with the clerk's office of the commercial court. But this obligation varies according to the size of the company. Micro-enterprises and small companies can, under certain conditions, request that their accounts remain confidential. Medium-sized and large companies must publish their accounts in more detail, and sometimes provide consolidated accounts (in the case of a group). Listed companies and international groups are required to publish their financial statements under IFRS and make them public.

How do you analyse financial statements?

Analysing financial statements makes it possible to understand a company's real health, beyond the raw figures. It helps to assess its profitability, its solvency and its capacity to invest… and to make informed decisions, whether you are a manager, an investor, a banker or an analyst.

Certain key indicators are essential, such as profitability, which shows whether the company is creating value, or solvency, which reflects its ability to meet its debts over the long term. Liquidity, which measures the ability to meet short-term expenses, can also be mentioned. The current ratio (current assets / current liabilities) is a good starting point, and cash flow makes it possible to estimate the cash available to the company.

Financial analysis also relies on comparison over time (changes from one financial year to the next) and across companies (against other businesses in the same sector). It requires cross-checking indicators, understanding their causes and placing the data in a strategic context.
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The usefulness of financial statements for stakeholders

Financial statements concern a large number of stakeholders, who rely on these documents to guide their decisions.

For executives and managers

To steer a company effectively, it is strongly advisable to have a clear, quantified view of its situation. Financial statements allow executives to track the progress of the business, identify performance levers or sources of imbalance, and adjust their strategy. The balance sheet, the income statement and the cash flow statement thus become genuine decision-making tools.

For investors and shareholders

Before financing a company, it is only logical to want to know whether its finances are sound or, on the contrary, fragile. Financial statements give investors a transparent view of profitability, level of risk and growth potential. They are also used to assess the quality of management, the strength of the business model and the ability to generate dividends.

For banks and financial partners

When a company applies for a loan or a credit line, banks rely on its financial statements to assess its solvency, its stability and its repayment capacity. Well-kept, clear and consistent accounts inspire confidence and make it easier to access financing.

For government bodies and regulators

The tax authorities, social security bodies and market regulators also use financial statements to check that accounting practices are compliant. They are a control tool but also a lever of economic regulation, ensuring transparency and fairness between players.

For employees and staff representatives

Even internally, financial statements have their uses. They allow employees or social and economic committees (CSE) to better understand their company's economic situation, anticipate developments and take a more active part in social dialogue.

Financial statements are much more than a simple accounting exercise: they are tools for management, transparency and decision-making, indispensable to all of a company's stakeholders. Knowing how to read, analyse and interpret them means acquiring a key skill in the business world.