Which financial statement tells the value of a Business?
None of the financial statements will report the value of a business. The main financial statements (balance sheet, income statement, statement of cash flows, statement of stockholders’ equity) may provide some helpful partial information, but they will not report the value of the business.
Two reasons why the value of a business is not included in the financial statements are:
- The financial statements are generally based on the company’s past recorded transactions. The value of the business will more likely be based on the perceived future transactions.
- The accountants’ cost principle prohibits a business from reporting some highly-valued assets such as trademarks, brand names, and an effective management team (assuming these were developed internally).