Legal Definitions - financials

Financials is a commonly used, informal term that refers to financial statements. These are formal records that provide a comprehensive overview of an entity's financial activities and position over a specific period. For businesses, they typically include documents such as balance sheets, income statements (also known as profit and loss statements), and cash flow statements. For individuals, they might encompass tax returns, bank statements, and investment records. These documents are crucial for understanding economic performance, health, and stability.

Here are a few examples illustrating the use of "financials":

• Example 1: Business Seeking Investment
  A startup company is pitching to venture capitalists for a new round of funding. The investors request to see the company's "financials" from the previous two fiscal years.

  Explanation: In this scenario, "financials" refers to the startup's official financial statements, including its income statements (showing revenue and expenses), balance sheets (detailing assets, liabilities, and equity), and cash flow statements. The venture capitalists will analyze these documents to assess the company's past performance, growth potential, and overall financial health before deciding whether to invest.

• Example 2: Personal Loan Application
  An individual applies for a significant personal loan from a bank to consolidate debt. The loan officer informs them that they will need to submit their personal "financials" for review.

  Explanation: Here, "financials" would include documents like the applicant's recent pay stubs, tax returns, bank statements, and possibly statements from other existing loans or credit accounts. These records collectively provide the bank with a clear picture of the individual's income, expenses, assets, and liabilities, allowing them to evaluate the applicant's ability to repay the new loan.

• Example 3: Real Estate Transaction
  A potential buyer is interested in purchasing a small apartment building. Before making an offer, their real estate agent advises them to review the property's "financials" for the last three years.

  Explanation: In this context, "financials" would refer to the income and expense statements for the apartment building, showing rental income, operating costs (like utilities, maintenance, property taxes, and insurance), and net operating income. Reviewing these documents helps the buyer understand the property's profitability and potential return on investment.