Top 4 Types of Financial Statements: A Complete Guide for Businesses and Investors

What if your profit looks strong, yet your bank balance keeps falling? That gap is why the types of financial statements exist. Together, they show where you stand, how you performed, and where the cash actually went. Skip one, and warning signs can hide, like slow-paying customers or rising loan costs. Want to see which report reveals what, and how to spot the truth fast? Keep reading; the answers start below.

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The Four Main Types of Financial Statements Explained

There are four core reports most companies prepare:

1. Balance sheet (also called statement of financial position).
2. Income statement (profit and loss).
3. Cash flow statement.
4. Statement of changes in equity.

These four make up a “complete set” in global rules. The U.S. investor guide from the SEC lists the same four. 

Understanding Each Financial Statement and Its Purpose

Balance sheet: what you own and what you owe

The balance sheet is a snapshot at a point in time.

• Assets: cash, receivables, inventory, equipment, and more.
• Liabilities: payables, loans, taxes due.
• Equity: what’s left for owners (assets minus liabilities).
  

It follows a simple rule: Assets = Liabilities + Equity. That one line keeps the sheet in balance. The formal standard also calls this the statement of financial position. 

Income statement: money made and money spent

This report covers a period (month, quarter, year).

• Revenue at the top.
• Costs and expenses next.
• Net income (or loss) at the bottom.

Use it to see if the business is profitable and what is driving margins. 

What is a cash flow statement?

It shows cash in and cash out over the period. It is split into three parts:

• Operating (day-to-day business).
• Investing (buying/selling long-term assets).
• Financing (loans, stock, dividends).

Companies can prepare it using the direct or indirect method. Either way, beginning cash plus net change equals ending cash. 

Statement of changes in equity

This report explains movements in owners’ equity: new capital, profits kept, losses, and dividends. It ties the income statement and balance sheet together. Global rules require it in a complete set.

How Financial Statements Work Together

• The income statement ends with net income.
• That net income rolls into equity (retained earnings) on the balance sheet.
• Changes in assets and liabilities on the balance sheet help build operating cash flows on the cash flow statement.
• The statement of changes in equity shows the bridge from last period’s equity to this period’s equity, including net income and dividends.

Simple Cash Flow Statement Example You Can Learn From

You asked for a cash flow statement example. Here’s a short one using the indirect method:

Cash flows from operating activities

• Net income: $50,000
• Add: Depreciation (non-cash): $5,000
• Less: Increase in accounts receivable: $(8,000)$
• Add: Increase in accounts payable: $6,000

Net cash from operating: $53,000

Cash flows from investing activities

• Buy equipment: $(20,000)$
• Net cash from investing: $(20,000)$

Cash flows from financing activities

• New loan: $15,000
• Loan repayment: $(5,000)$

Net cash from financing: $10,000

Net change in cash: $43,000

Beginning cash: $12,000 → Ending cash: $55,000

Use this to answer what a cash flow statement is in action: it explains exactly why cash went up or down.

Pro Forma Financial Statements: Why They Matter for Planning

Pro forma financial statements show assumptions and future or “as-if” scenarios. You use them for planning, fundraising, and big decisions.

• What is a pro forma? It means “for the sake of form.” In finance, it’s a model of results if certain events occur.
• Pro forma income statement: projects revenue, costs, and profit under assumptions (e.g., new pricing).
• Pro forma balance sheet: shows expected assets, debts, and equity after a change (e.g., a new loan).
• Pro forma financial statements must state the assumptions. Make them clear and consistent. Cross-check that the pro forma cash and equity still tie out.

Note: A pro forma invoice is not a financial statement. It’s a pre-invoice or quote sent before a sale. Don’t mix it with a pro forma report.

How FP&A Teams Use Financial Statements in Real Life

Financial planning and analysis (FP&A) teams lean on all four reports. They turn the statements into a plan, a forecast, and a story of cause and effect.

• They model a pro forma case to test pricing, hiring, capex, and debt.
• They track actuals against the plan and explain the variance.

This is what financial analysis in practice is: ask a question, pull the right statement, compute the metric, and decide.

Quick Reading Tips to Analyze Financial Statements Faster

Balance sheet quick checks

• Look at cash, debt, and working capital first.
• Compare the current ratio and debt to equity to the last period.

Income statement quick checks

• Watch gross margin and operating margin trends.
• Scan for one-time items that distort results.

Cash flow quick checks

• Operating cash flow should be positive over time for a healthy business.
• If profit is up but operating cash is down, dig into receivables or inventory.

Equity statement quick checks

• Read the dividends line. It affects cash and retained earnings.
• See how net income flows into retained earnings.

Common Financial Statement Mistakes to Avoid

• Treating profit as cash. They are not the same.
• Ignoring the notes and policies. They explain choices that change the numbers.
• Forgetting how the four statements connect. One change flows through the rest. 
• Use a Financial Statement Template to Save Time

Building from scratch takes time. A clean layout prevents errors and helps your team read the numbers fast. If you want a head start, grab a financial statement template you can edit in Excel or Google Sheets.

What’s Included in This Template

• Balance sheet, income statement, and cash flow statement tabs.
• Built-in checks so the sheet stays in balance.
• Clear input cells and summaries you can share. 

Get the financial statement template today.

Step-by-Step Guide to Building Better Pro Forma Models

1. Start with last period’s actuals.
2. Layer in assumptions for price, volume, hiring, capex, and financing.
3. Build a pro forma income statement first.
4. Update the pro forma balance sheet for working capital, debt, and new assets.
5. Make the cash flow statement link to both.
6. Stress test with best, base, and worst cases.
7. Mark every assumption in one place.
8. Label files and tabs clearly so your team can audit them.

Key Financial Metrics Every Business Owner Should Track

• Gross margin and operating margin (from the income statement).
• Current ratio, debt to equity, and cash (from the balance sheet).
• Operating cash flow and free cash flow (from the cash flow statement).
• Return on equity (ties net income to equity).

These basics sit at the heart of what financial analysis is in a real business. They’re simple, repeatable, and useful.

Final Takeaway: Turn Your Financial Statements Into Real Insights

The types of financial statements work best together: the income statement shows performance, the balance sheet shows strength, the cash flow statement shows the cash truth, and the equity statement shows ownership change. Need to plan ahead? Build pro forma financial statements and keep every input tight and clear. Ready to turn numbers into action today?

Grab a financial statement template and a cash flow statement example from Ready Excels, plug in your data, and see the story in minutes. Explore all financial statement templates.

FAQs 

What’s the financial statements?

You might hear this exact phrase. People mean “What are the financial statements?” It’s the four reports above: balance sheet, income statement, cash flow statement, and statement of changes in equity. 

Do small businesses need all four?

Yes. Even a simple version helps you see if you can pay bills, invest, and grow. Many small teams skip the equity statement, but you should keep it, even if it’s short. 

Which statement should I read first?

Start with the cash flow statement to see if the business is funding itself. Then scan the income statement for profit drivers. Close with the balance sheet for risk and runway.