A financial report is a summary of business operations over a set period, often quarterly or annually. It combines important data from a company’s balance sheet, income statement and cash flow statement to provide an overview of a company’s financial health. It reflects profits and losses, shows the amount of money coming in and going out, and helps investors and managers understand a business’s trajectory.
It can be created for internal or external use. In the case of external reports, they are typically required by regulatory bodies. Accurate reporting is necessary for compliance with taxation, accounting and legal standards. For example, publicly-traded companies in the United States must file a quarterly (10-Q) and annual (10-K) report with the Securities and Exchange Commission (SEC).
Internally, financial reports help businesses evaluate their performance over time and identify areas where they can improve. Having accurate data can also make it easier to secure financing or manage debt.
The economic impact of financial reporting goes beyond the capital market. Empirical studies consistently find that high-quality financial reporting is associated with more efficient real activities of the reporting firm. In particular, a misreporting firm might be more likely to overinvest in the next period to conceal its misreporting, and a truthfully-reporting firm might invest more efficiently than the peer firm.