It is also known as the profit and loss (P&L) statement and is important in gauging the profitability of a business. You absolutely should read the accounting policies, too, no matter how boring they are. However if the Company would not have applied revaluation model, but the cost model, its PPE and equity would have not looked that great. I would say that exactly the extent and length of the notes is the reason why regular investors just don’t read them. These are cash outflows of uncertain amounts expected to happen at an uncertain time. Generally, the notes are the main method for a company to comply with the full disclosure principle.

Below is a portion of ExxonMobil Corporation’s (XOM) balance sheet for fiscal year 2021, reported as of Dec. 31, 2021. Investopedia’s Glossary of Terms provides you with thousands of definitions and detailed explanations to help you understand terms related to finance, investing, and economics. The balance sheet of the same corporation will have as its heading “Consolidated Balance Sheets” and will report the amounts as of the final instant as of December 31, 2022 and the final instant as of December 31, 2021.

Example of a Balance Sheet

When a financial statement reports the amounts for the current year and for one or two additional years, the financial statement is referred to as a comparative financial statement. For example, the income statement of a large corporation with its shares of stock traded on a stock exchange might have as its heading “Consolidated Statements of Income” and will report the amounts for 2022, 2021, and 2020. This allows the user to compare sales that occurred in 2022 to the sales that occurred in 2021 and in 2020. However, those separate legal corporations (called subsidiaries) are owned and controlled by one of the corporations (the parent corporation). The shares of common stock of the parent corporation are often traded on a major stock exchange. Those stockholders are interested in receiving financial statements which report the results and financial position of the entire economic entity, which is all of the subsidiaries and the parent corporation.

Footnotes also explain in detail why any irregular or unusual activities such as a one-time expense has occurred and what its impact may be on future profitability. Investors should start by learning how to interpret key figures on a company’s balance sheet, income statement, and statement of cash flows. Those wanting to dig a little deeper may want to consider learning how to analyze reports, such as shareholder’s equity and retained earnings. Investors can find a publicly traded company’s financial statements in its annual report or a 10-K filed with the SEC. Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.

How often should financial statements be prepared?

Per the income statement above, Apple, Inc.’s gross profit as of September 2021 was $152,836,000, the operating profit was $108,949,000, and the net profit was $94,680,000. The notes are the most extensive and elaborate part of the financial statements and yes, the readers of the financial statements often skip reading it just because it is soooo loooong, boooring to read. Notes are the integral part of a complete set of financial statements in line with IAS 1. When analyzing financial statements, it’s important to compare multiple periods to determine if there are any trends as well as compare the company’s results to its peers in the same industry.

GAAP includes standards for things like recognition, measurement, and disclosure. GAAP can impact financial statements on how revenue is recognized and expenses are reported. Following GAAP ensures that financial statements are consistent and comparable. First, financial statements only notes to financial statements provide a snapshot of a company’s financial position at a specific point in time. They do not reveal how the company got to that point or what might happen in the future. The balance sheet is a financial statement that provides an overview of a company’s assets, liabilities, and equity.