An external statement is a financial declaration provided for the benefit of members of the public. This includes investors, regulators, creditors, and other parties with an interest in a firm’s financial position. Such documents provide a snapshot of financial activity, and offer insight into the company’s future plans. They may be required by law in some cases and areas, while in others they are optional. Copies of prior external statements may be found on a company’s website or in other records, and can also be requested directly from the company’s public relations or finance department.
Several components can go into an external statement. One is a discussion of cash flow, covering cash that moved into and out of the company over the course of a given accounting period. Particularly large transactions may be flagged and discussed in the document for the benefit of readers who want to know more about them. For example, if the firm’s cash flow tripled in one quarter because it sold off a large number of assets it was not using, this would be disclosed to make people aware it was a case of extraordinary income.
Balance sheets in an external statement can provide information about funds moving in and out, and where the company was left at the end of the accounting period. These include debts as well as assets the company has, to offer a more complete picture of the firm’s financial position. Balance sheets can help investors and other members of the public understand where the company stands, financially. For example, it might have a lot of assets, which look good on paper until readers note that it is heavily leveraged, using those assets as collateral for a number of debts.
Income statements are also part of an external statement. Sometimes called a profit and loss statement, this document discusses what the company made through business activities like selling products and services. It also discloses losses, such as expenses incurred to address legal matters, or unusually large payroll obligations. Together, all of this information can help members of the public understand how the company is performing, and how it is likely to perform in coming months and years.
Publicly traded firms are legally required to issue an external statement on a regular basis. Firms must also file tax declarations with regulatory authorities, who have the right to audit if they have concerns or suspect a company is not fully disclosing all relevant information. Private companies don’t have to provide this information, but may do so to reassure clients and creditors. For example, a chocolate manufacturer might want its distributors to know that despite rising raw cacao prices, it is financially stable and will remain in business.
