Quarterly financial statements: Overview, definition, and example
What are quarterly financial statements?
Quarterly financial statements are financial reports that companies are required to prepare and disclose every three months, typically for the first three quarters of a fiscal year. These statements provide a snapshot of the company’s financial health, performance, and activities over a three-month period. They are usually part of a public company’s regulatory reporting requirements, governed by securities laws and regulations.
The primary quarterly financial statements include the Income Statement (Profit and Loss Statement), Balance Sheet, Cash Flow Statement, and sometimes a Statement of Shareholders' Equity. These reports give stakeholders, including investors, analysts, and regulators, the necessary information to evaluate the company's financial performance on a more frequent basis than annual reports.
Why are quarterly financial statements important?
Quarterly financial statements are important because they provide timely, up-to-date information about a company’s financial condition and performance. They allow stakeholders to track the company’s progress throughout the year, rather than waiting until the end of the year to assess financial results.
For investors and analysts, quarterly reports are vital for making informed investment decisions, assessing the company’s ability to generate profits, manage cash flow, and meet its financial obligations. For companies, regular reporting helps maintain transparency and ensures compliance with financial regulations. Quarterly statements also allow companies to make adjustments to strategies or operations based on the most recent financial data.
Understanding quarterly financial statements through an example
Imagine a publicly traded company that manufactures electronic devices. Each quarter, the company prepares and publishes its quarterly financial statements, which include:
- Income Statement: Shows the revenue from sales, costs of goods sold, operating expenses, and profits for the quarter.
- Balance Sheet: Lists the company’s assets, liabilities, and equity as of the end of the quarter.
- Cash Flow Statement: Tracks the cash inflows and outflows during the quarter, including operating activities, investing, and financing activities.
If an investor wants to assess the company’s profitability for Q1, they would look at the income statement to understand how much the company earned in revenue and its net profit for that quarter.
In another example, a small business may also choose to prepare quarterly financial statements, even if not required by law, to track cash flow and make strategic decisions for the next quarter, such as expanding operations or securing financing.
An example of a quarterly financial statements clause
Here’s how a quarterly financial statements clause might look in an agreement:
“The Company shall prepare and provide the Investor with quarterly financial statements, including but not limited to the Income Statement, Balance Sheet, and Cash Flow Statement, within 45 days after the end of each fiscal quarter. The statements shall be prepared in accordance with generally accepted accounting principles (GAAP) and accurately reflect the financial condition and results of the Company’s operations for the period.”
Conclusion
Quarterly financial statements are essential tools for assessing a company’s ongoing financial health and performance. They offer timely insights that help investors, analysts, and company management make informed decisions. Regular reporting on a quarterly basis fosters transparency, keeps stakeholders up to date, and ensures that a company remains accountable throughout the fiscal year. For companies, quarterly statements are not only a regulatory requirement but also a valuable tool for tracking progress and making adjustments as necessary.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.