What Is the Difference Between an Income Statement and a Balance Sheet Annual Report & a 10K?
Original post by Geri Terzo of Demand Media
Financial statements -- including 10-K filings, balance sheets, income statements and annual reports -- all serve a distinct purpose. While all of these documents might inform investors about the condition of a business and the prospects for the future, each reveals a different perspective on the state of operations. Market professionals comb through these offerings to come up with opinions on an investment or to determine a company's creditworthiness. Investors use select documents to set expectations and examine results.
A 10-K is the form on which a company submits an annual report to the Securities and Exchange Commission. It contains financial statements for the most recent one-year period. While the typical approach in a 10-K is to shed light on the financial condition of a company, filers sometimes disclose more detail. Technology giant Microsoft, for example, addressed the competitive landscape in its fiscal year 2011 10-K filing and disclosed competition stemming from technology rivals Google and Apple.
The annual report is meant for shareholders. It is distributed to shareholders during the annual meeting season, which is typically in the spring. This document contains some financial information but its purpose is to provide details and context on the status of any litigation, initiatives, changes or growth plans. It often has a friendly tone but also addresses current challenges that a company might be facing. The chief executive typically addresses shareholders at the top of the document. In 2011, Berkshire Hathaway, for example, held its annual shareholder meeting in April and began distributing the annual report to shareholders in March.
The income statement reveals quarterly or yearly profits and losses. A quarterly statement might dictate whether a company is on track to meet its yearly goals for income and revenues, or if losses have been worse than expected. Profits on an income statement, which are earnings, have the potential to drive a company's stock price higher or lower. Investors often base buy-or-sell decisions for a stock on whether or not the items in an income statement met a certain standard.
Assets and liabilities, in addition to a company's equity, are reported on a balance sheet. This information reveals how readily a company can access cash in addition to any short-term or long-term debt obligations. A balance sheet is a current reflection on how financially sound a business may be because it encapsulates items at the end of the reporting period, according to the website of financial services provider Karvy. Companies, lending institutions and investment bankers use a balance sheet to determine the most appropriate type of financing and terms a business can access for an expansion or restructuring.
- U.S. SEC; Microsoft Corporation: Form 10-K Fiscal Year 2011
- "Forbes"; Earnings Disappoint Investors; Michele Steel; October 2006
- ZD Net; Microsoft Declares Victory Over Linux; Ed Bott; August 2011
- AppleStock.org: Apple, Inc (AAPL) Annual Income Statement
- U.S. SEC: Form 10-K
- Karvy: Balance Sheet Basics
- Berkshire Hathaway: 2011 Berkshire Hathaway Annual Shareholders Meeting Saturday, April 30th
About the Author
Geri Terzo is a business writer with over 15 years experience reporting on Wall Street. Her coverage ranges from institutional investing, including hedge funds and investment banking, to family topics and her career experience includes work for Fox Business, CNBC and "IDD Magazine." Terzo is a graduate of Campbell University, where she earned a B.A. in mass communication.
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