Financial Reports vs. Balance Sheets: Major differences and why they are important for business

When you are in an active business environment, keen and prudent to make the right decisions about where and when to invest, it is imperative you have a clear vision of your firm’s balance sheet. There are many types of documents that hold information regarding the financial status of any firm but the two most vital are the actual Balance Sheet and Financial Reports.. Both are of equal importance to business analysis but give out the state of one's financial condition from two completely different sides.

While our domain experience at LoanDPR is aiding businesses in the preparation of Detailed Project Reports (DPRs), a critical document required to facilitate loans, we are also aware of how important it is to know other kinds of financial statements and the balance sheet as well. So, how do these two compare with each other? What are their constituents and why is each so significant for business owners? That is what we will explain in this piece.

What is a balance sheet?

Balance Sheet A Balance Sheet is the analysis of a business venture at the specific point in time. This is one of the most used financial statements in the determination of the financial position of an accountant or a company owner. The balance sheet has three major elements:

1. Assets:?

Ventures assets are defined as anything that the business entity owns that has some form of value including cash, equipment, stock, and receivables.

2. Liabilities :

?These are the anticipated costs that the business has to incur, for example loans which the business has to pay in the future, accounts payable, bills etc or partnerships or warrants which the business has to pay in the future.

3. Equity:

Sometimes referred to as owners ‘equity or shareholders’ equity is arrived at by subtracting the amount of liabilities from the total amount of assets. Therefore equity is a measure of ownership in the business.

The equation of the balance sheet is this:?

Liabilities + Equity = Assets

This formula ensures that the financial statement of the business is balanced-this explains why the term "balance sheet" is called so. It indicates stakeholders at what point in time the status of the company's assets, liabilities, and owners' equities stands at.

Elements of an Equilibrium Statement?

Assets?

Assets can further be divided into two categories: fixed or non-current (or current).

Current Assets:

These are those that, within a period of less than a year, would be liquified to cash. Cash, accounts receivable, and inventory are some examples.

Non-Current Assets:

Long-term assets include real estate, equipment, machinery, and patents; they are also called intangible assets.

Liabilities:?

Much as assets are, liabilities are categorized into current and noncurrent.

Current Liabilities:?

Obligations or debts to third parties payable within the next twelve months of time, for example, accounts payable and short-term loans.

Non-Current Liabilities:?

Ten-year obligation in the form of bonds payable, long-term debt, and leasing obligations.

The value of shares granted to shareholders is known as Common Stock.

Financial Reports: What Are They?

There exists a very big set of papers, referred to as Financial Reports, that give an overview of the overall performance of any business in terms of financial statements over a particular period of time. While the balance sheet only gives a snapshot at one particular moment in time, financial reports give a dynamic picture over time as the company progresses.

?Reports that occur regularly which tend to be common in financial reports include:

1. Income Statement:

This document is otherwise called a P&L account and shows all the revenues, expenses, and incomes of a business over a particular time period. It aids in the company's decision on price, cost control, and investment, besides showing results as to profitability.

2. Cash Flow Statement:?

This statement can be described as a statement that indicates how cash is coming into the company and going out in terms of monthly flow. Compared to this statement, one can get a clearer picture of what liquidity is as well as the capacity of the business to discharge the obligations in the short term.

3. Retained profits statement:

This statement exhibits the change that went on to retain profits over a given period. In addition to the summary of earnings on how they are being used or maintained inside the organization, it relates the income statement with the balance sheet.

4. Statement of Changes in Equity :

This report provides details of the changes that had happened to the company’s equity for the accounting period to include the retained profit, amount of dividends declared and paid, and new share issues, among others.

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Main Features that Separates Balance sheet from Financial Statements

Balance Sheet:?

The balance sheet shows the existence of the assets, the liabilities and shareholders’ equity due to the firm at some time and gives the picture of financial position of the firm at some time.

Financial Statements:

In more extended periods, the financial statements offer information about the general efficiency of an enterprise.

It entails many accounts that serve to provide a balanced view of the organization’s health and includes cash flow statement, an income statement and among others.

Time Perspective 2.

Balance Sheet: This is a static paper that reflects the position of a corporation on a given date.

Financial Reports:

These are live reports detailing profitability and continuous running of the company at any given time, month, quarter, or year.

Details Presented

3. Balance Sheet:?

This report presents a general overview of the equity, liabilities, and assets of the business. The company's financial structure and liquidity are the focus points here.

Financial Statements:

These are the reports that contain more details on the cash flows, cost, profitability, and revenues. They give a critical analysis of all the many aspects of the company and are generally more detailed.

4. Use

Balance Sheet: This is usually utilized by lenders, shareholders, as well as investors to assess the stability and risk associated with the business. It is important for any complete financial structure and assessing the ability to pay obligations.

With financial reports, management, investors, and analysts evaluate whether a firm is run efficiently in terms of operations, profitability, and cash flow.

Financial Reports review operational efficiency, profitability, and cash management. Information relevant to forecasting, budgeting, and decision-making is included in financial reports.

It provides a company's balance sheet to give crucial information regarding the firm's financial position at any point in time. Still, to gain a real insight into the state of the firm, it needs to be considered a combination with other financial statements. Taken together, these statements help further in giving more and more on the following issues:

In giving adequate analyses on whether the company should expand its debt, pay dividends, or start new projects.

Ensures Compliance to Laws and Openness- Companies are required by various countries to issue periodic financial reports to stay legal and open.

Securing Loans- Reliable financial reports are a fundamental aspect of obtaining loans and other kinds of funding for businesses. Just like banks, lending institutes assess the creditworthiness of an entity by making detailed scrutinization of the balance sheet and other financial statement accounts.

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Role of LoanDPR in DPRs

LoanDPR will always set a company on a DPR of course, not to mention we don't even service in the preparation of balance sheets or financial statements. For those looking for funding or loans, for example, it's always an asset that contains a detailed project viability, cost, risks, and expected return on investments in a DPR.

LoanDPR can help your business in the following ways

Comprehensive Analysis We draw up DPRs, which contain comprehensive information about the project's goals, costs, timeline, and financial projections.

Tailored Solutions Each DPR is tailored to address your specific needs - to raise funds to finance expansion, start a new venture, or grow your company.

Simplification of loan application: A well-prepared DPR may help businesses to increase their chances of getting the needed capital by giving a better case to lenders.

Among other financial reports, the balance sheet has uses running a firm on a day-to-day basis, while the DPR is used to finance future projects. A well-structured DPR shows the feasibility and possibly the return on investment for any project undertaken. This may thus help in raising the capital you require to expand your business.

Business owners should know the difference between the balance sheet and financial reports, since they provide essential information on most aspects of the company's state of finances. The financial reports provide much more expansive insight into a company's general performance over time whereas the balance sheet focuses on financial condition at some specific point in time.

Conclusion:

At LoanDPR, we feel the need as well to provide all the concise and minute financial information with the loan application. We are specialized at making Detailed Project Reports (DPRs) that are essentially required for raising finance for projects by the companies; although we don't prepare balance sheets or financial reports. We can support you as well if you want to expand your company and need assistance with your DPR.