What is financial reporting?

Communicates essential data
Key shareholders, executives, investors and professionals all rely on current financial data to make decisions, plan budgets and monitor performance. The importance of open communication and transparency is necessary to support funding, investment opportunities and financial review. Many investors and creditors rely on the information companies communicate in financial documentation to assess profitability, risk and future returns.
Supports financial analysis and decision-making
Financial reporting is crucial for performing analysis to support business decisions. Using financial statements improves accountability and supports the analysis of critical financial data. Documents like the income statement and balance sheet provide real-time information that you can use to track historical performance, identify key areas of spending and create forecasts more accurately. With better-developed data models and detailed financial analysis, reporting helps businesses evaluate current activities and make decisions for future growth.
Related: How To Conduct an Analysis of Financial Statements
Types of financial reports
Most companies document financial data on three key statements but sometimes include the shareholder equity on a separate report. The following documents make up the primary records of a company's financial activities:
Balance sheet
A balance sheet records the total assets, liabilities and equity you currently possess. A quick review of the balance sheet can show you the total assets, minus the equity and liabilities. Typically, businesses track balance sheets on a quarterly basis and may include data from balance sheets when creating yearly reports. Balance sheets also provide a real-time assessment of your current asset liquidity and debt coverage. Commonly, balance sheets outline the following line items:

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  Liquid assets, including cash, certificates of deposit, short-term securities and treasury bills
  
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  Current assets, including accounts receivable, inventory, fixed assets and prepaid expenses
  
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  Current liabilities, including short-term and long-term debt, accounts payable, payable wages and dividends, tax expenses and prepayments from clients
  
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  Shareholder and owner equity values, like retained income, receivable dividends, capital gains and stocks