Investment Plan: 5 Important Types of Financial Statements

Shareholders/investors entail financial statements to estimate their valuable finances and correct them to reach final verdicts by considering maintenance on interaction affairs. When assessing finances, sharers can gather significant data detailed on financial accounts.

This data explains: debt concentration, profit to loss ratio, income position, and procedures companies follow to sort out internal and external investment matters. Hence, in a word, financial statements can’t be denied when aggregating information regarding companies, in which shareholders are centring to invest, and assisting investment plans from all around.

Why are financial statements important for investment plans?

Financial statements are essential to shareholders because they can present adequate reports concerning a company's interests, loans, profitability, liability charge, and the capability to satisfy its precise and prolonged business responsibilities.

However, there are three most important financial statements used frequently. But to advance preciseness, the purpose 5 types of financial statements, of applying in investment plan process, falls in three directions:

1. Provide conceptual structure

By disclosing five statements of finance, linked to a particular company, investors can attain in-depth data to get assured whether the company is meeting their criteria or not.Through straight reporting assistance, there remains no need for other tools to clear a company's financial objectives. Thus, they track exact spots without rendering extra figures that confuse investment planning.

2. Support existing and credible shareholders

Financial Reports are the principal reservoirs of data that could support shareholders to arrange the maximum of investment knowledge for their evaluations and conclusion. If they desire to identify how financially solid the corporation is, these reports are the chief roots of data that could develop your estimation.Both existing and possible shareholders frequently apply the financial declarations to inspect and make interest-driven investment conclusions.

3. Supervise the company's planned, expected net funds inflows

The objective of financial reports does not solely present the investors to understand how properly or detrimentally the company's economic status is or how huge or limited is its financial infrastructure.

They further support the investors in predicting the company's near future financial position by combining its cash flow statement with a balance sheet and comparing it with an income statement.

These statements differentiate in perspectives, describe different objects, and use situationally. Consequently, all types of financial statements run into the core surface of a company's financial position and dig out accurate information to present to shareholders.

Five Types of Financial Statements

By taking the importance of financial statements and among multiple sets of these financial reports, many consider only three statements important to have, while some attain four. But an accurate investment plan comes into action by investigating a company through five types of accounting statements. All these types of financial accounts contribute authorization to the decision-making process of investment plans.

The comprehensive descriptions of financial statement types come as follows. After understanding the purpose of each financial report, it’ll be a feasible and less time taken strategy for you to navigate interested companies' financial score and wisely invest in them.

1. Income Statement

“It is a statement of estimation of the income of a specific time determining Net Sales and each kind of investment or expenditures.”

The significance of this statement could be defined as it provides investors clear-cut information about the company’s net income, by comparing total revenues with expenditures, and also navigates profitability to loss ratio.

Formula: Net Income = (Revenue + Gains) - (Expenses + Losses)

[Using this formula through one-step procedure, users can have complete information of how much income company generates over a specific period]

In the above formula, the terms mentioned are:

  • Revenue: Encapsulation of sales percentage, made through both operating (manufacturing) and non-operating (business installation) activities.
  • Gains: It includes all those activities that triggered a rise in a company's income state.
  • Expenditures: It represents property invested in a company/business establishment .e.g, advertising and management expenses.
  • Losses: Amount/assets invested by the company, which earned less in return than expectations.

Shareholders consider its presented information a base of investment plan after knowing how frequently the rise in income statement occurs, which indirectly shows the company's durational fluctuations.


Fig.1 Apple Inc 2018 Income Statement

2. Balance Sheet

“This sheet contains tables and columns-consisting statements of insights regarding assets, debts, and property.”

A balance sheet aims to provide engaged contractors an opinion of the business's financial situation by clearly disclosing what the business has as assets and where its debts come from. It is noteworthy that each shareholder identifies how to apply, probe, and understand a balance sheet statement. It may provide residing information or logic to spend in shares.

Formula: Assets = Liabilities + Equity

[Using this formula, assets (operating/non-operating) can be calculated by summing up owner’s equity and liabilities, which overall gives company’s stability to stay up in financial position]

In the above formula, the terms mentioned are:

  • Assets: These are beneficial investments/savage for business and based on convertibility, material presence, and application, e.g, cash, land property, etc.
  • Liabilities: It represents company owes, such as debts obligated on companies to clear using assets.
  • Owner’s Equity: It’s actual profit maintained by the company and obtained through subtraction of total assets and total debts.

It’s an important statement that beats other financial accounts because it retains maximum information. Therefore, in terms of balance sheet vs income statement, the selection of one depends on two situations; (1) Whether investor wants to evaluate only profitability position, (2) or want to go through a periodic update in company’s overall financial position.


Fig.2 Apple Inc 2018 Balance Sheet Statement

3. Statement of Cash Flow

“A cash flow statement comes equally important as an income statement in a list of financial statements, plainly describing stock production and its application classified under distinctive actions.”

Among the format of financial statements, the cash flow’s one is extremely important to understand as it doesn’t involve any estimation formula. Its format doesn’t involve distinctive figures involved in financial planning. Rather, it only incorporates three types of activities; Operating, financial, and investment.

What does its format describe to users?

Let’s take a look.

Operating Activities: These are business operations that cover manufacturing and the company’s scalability events. The operational company ventures incorporate directory events, dividend pays, tax returns, salaries to workers, and cash for business rental existence. This section only focuses on income boosting segments and doesn’t discuss debts or liabilities.

Investing Activities: The secondary division on the cash flow report shows the profits and losses made because of speculation in fixed assets, including property, plant, or equipment (PPE) hence indicating a complete transformation in the capital state for a business.

Financing Activities: The last segment on the cash flow report shows the cash flow within the business, its proprietors, and lenders. Economic actions involve activities including liability, investment, and interests. In these events, generated capital is listed when the property is grown (including cash coming from shareholders or banks), and outgoing stock is registered when shares are given.


Fig.3 Apple Inc 2018 Cash Flow Statement

4. Statement of Change in Equity

Statement of Changes in Equity leads to the reunion of the available and closing profits of investment in a business through a selective recounting time.

It describes the bond linking a business income statement and balance sheet. Further, it combines the extra nitty-gritty activities not included in these two economic declarations, including dividend cash, investment removal, financial strategies modifications, and changes of previous time-lapses, etc.

Formula: Opening Balance of Equity + Net Income – Dividends +/- Other Changes = Closing Balance of Equity

It majorly helps to declare dividend payments by combinely coming with other types of financial accounts.

5. Statement of Shareholder’s Equity

Statement of shareholders’ equity describes the variations in the rate of shareholders’ ownership or tenancy investment in a business from the opening of a financial time to its termination. It provides shareholders extra clarity around the advances in ownership records and details the company actions that commit to the progress in estimating shareholders’ equity.

In simple words: Once you have a statement of shareholder’s equity, you will know why businesses have changed their income statement and balance sheet over each specific period and which consequences are supporting these modifications.


The account of shareholders’ equity provides shareholders with an extremely comprehensive knowledge of how particular investment statements have evolved throughout a specific time. The income statement presents a pretty sound sharpness of the variations in preserved profits, but the declaration of shareholders’ equity provides property increment and repatriation, and further other details that push the property statement immediately.


Fig.2 Apple Inc 2018 Statement of Shareholder’s Equity

Frequently Asked Questions?

1. Where can I find one-stop financial elements, including financial statements?

Similar to highlighting the company’s historical stock price, earning calendar, and market indexes, financial statements can be easily extracted along with other essential information required for the investment plan. You can either have all-in-one tools and API available free online for accomplishing this task professionally, such as FMP. This financial stock API has a strong grip over solving complex financial requirements while investigating, and hence, it’s a smart option.

2. Can the investment be made by considering only 3 financial statements?

In a short answer, YES! Investment can be made placing income statements, balance sheets, and cash flow on priority, during critical observation of the company. This is because these statements hold the primary information required for evaluating a company’s financial position (if it’s meeting shareholder’s investment criteria or not) and also help to predict future terminologies taken by the company.

Whereas the other two statements are important to impart precision regarding dividends and shareholder’s equity to declare the investment plan transparently.

3. How often do companies share financial statements?

Companies issue financial accounts to explain to the investors why they are competing well, undergoing crises and springs, or manufacturing economically, comprehensively expressing. However, companies release their income statement and balance sheet monthly or quarterly. In contrast, the annual report holds the complete set of statements mentioned above which release after a year’s gap.


Financial statements are of great significance as they provide shareholders with primary knowledge of the company’s financial position. So they could quickly propagate in their investment plan procedure. Although income statement, balance sheet, and cash flow are enough to navigate the exact percentage of business capabilities or increment to profitability. But the other two mentioned above assist by presenting dividend payments and reasons for timely changes in other major financial statements. They also retain authenticity in the investor's mind so that they can make investment decisions confidently.