An annual report helps a business owner understand the health of his company and determine areas of growth or possible reduction. A complete annual report consists of the cash flow statement, balance sheet and income statement.
Financial statements follow the same format regardless of the size of the company. What might differ is whether the financial report records numbers in the millions or thousands or uses actual figures. A report rounding down to thousands divides reported numbers by 1,000 on the page.
Reading the Financial Statement
When a financial statement is issued in the thousands, this fact is denoted in the line stating the date of the statement. It is usually in italics and parentheses after the financial statement date. This indicates that all the numbers on the page are rounded down and should be multiplied by 1,000 to get the full estimate of information.
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For example, if the assets are reported as $201,200 on the financial statement, the company has approximately $201,200,000 in actual assets. Keep in mind this is still a rounded number and is not defining the asset to the penny.
When the financial statement is created, the report creator rounds down based on the commonality of number length, meaning if the numbers are primarily in the millions or less, the author may round down and denote "dollars in thousands." It is also possible for bigger companies to round down denoting data with "dollars in millions."
Purpose of Rounding Down
Rounding the financial data down makes reading the financial statement easier. With a page full of numbers, adding the extra digits creates potential issues for misreading the information. For example, reading $122,232,233 next to $122,322,322 can lead to more errors than $122,232 and $122,322. Shortening numbers makes it easier for report readers to scroll through the numbers quickly to extrapolate data and reduces the chance for error.
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Understanding the Financial Statement
Companies should create an income statement at the end of each fiscal year. While there are many lines of information, the key data business owners look at start with total revenues on the top line. Revenue consists of all cash coming in.
The cost of goods is subtracted yielding the gross profit, also called gross income. Then all other administrative and sales costs are subtracted yielding the net profit, also called the net income. Ideally, a business is "in the black" with net income, meaning it is making a profit rather than operating at a loss.
