A financial statement is a financial report on the past financial year. The financial review includes the balance sheet (assets and liabilities), the income statement (revenues and expenses), the notes (on valuation rules) and the social balance sheet (personnel). Among other things, the whole provides insight into an organisation's financial figures in a snapshot.
Financial statements are viewed by various stakeholders from different points of view:
- Shareholders obviously want to know whether their investments are paying off.
- Banks, lenders, credit reference agencies and insurers are mainly interested in the company's creditworthiness.
- Suppliers, consumers and (future) employees check whether they can draw confidence from financial statements.
- Competitors like to compare results.
- The entrepreneur himself gets insight into the development of his business.
And yet we are not fans of annual accounts
1 | There are about 1,900,000 organisations operating in Belgium, including associations and government bodies. Of these, about 1,300,000 are real companies, half of which are sole proprietorships. Eliminate from that group also the companies that do not have a publication requirement and the newly established companies (whose first financial statements are not available until two or three years after incorporation), that leaves ultimately about 500,000 to 550,000 companies that effectively publish financial statements. So, for the vast majority of companies, you need sources other than financial statements to make an assessment.
2 | Within the group of companies that eventually publish financial statements, there are about 50,000 that publish financial statements according to the full model and provide, for example, a turnover figure. The vast majority thus file in another model (abridged, consolidated, specific) with far fewer figures and therefore limited insights.Within the group of companies that eventually publish financial statements, there are about 50,000 that publish financial statements according to the full model and provide, for example, a turnover figure. The vast majority thus file in another model (abridged, consolidated, specific) with far fewer figures and therefore limited insights.
3 | Moreover, a lot of financial statements - the number is estimated at 25% - are treated with some accounting cosmetics. So, you never know if the data is entirely accurate.
- Because they are tax-inspired. They are made up with the intention of paying as little taxes as possible. The entrepreneur thus shatters the image the outside world gets of his company himself. Incidentally, it could cost him dearly if he needs financing in the near future.
- Because they are simply falsified. Financial statements are embellished to show that a company is doing well. This is how companies escape traditional financial audits. Sometimes the financial statements are polished to the point of passing any financial analysis, only to then more easily set up fraudulent activities.
4 | Moreover, financial statements are always out of date by the time they are published. 95% of companies close their financial year on 31/12. Legally, they then have seven months - until the end of July - to file them. Then, the National Bank of Belgium will process and publish the annual accounts. Again, this takes some time, so they will not be available to everyone until September. Almost nine months after the close of the financial year, though it could be even more extreme.
- Today, we are 31 March 2025. The last available financial statements of a company will be that of 2023, closed on 31 December 2023. So right now, you are stuck with a snapshot that is 15 months old. Those financial statements may look sublime, but you know yourself what can happen in a year.
- On 16 March 2020, Belgium went into lockdown following COVID-19. Numerous (healthy) companies suddenly found themselves in trouble, but this only became visible in the financial statements more than a year later - August/September 2021.
- In response to inflation, in January 2022, wages of hundreds of thousands of workers rose by about 10 per cent. A lot of companies gasped again after COVID-19. The consequences would not be reflected in financial statements until more than a year and a half later - August/September 2023.
5 | In Belgium, we live in a paradise when it comes to annual accounts and data. Annual accounts are centralised at the National Bank and are also quite uniform. Bear in mind, however, that in other countries much fewer, if any, annual accounts are publicly available. The publication requirement is not identical in every country, formats are different and even the interpretation of specific balance sheet items can differ thoroughly.
- In Germany, still Europe's largest economy, only 8,000 to 9,000 annual accounts are available.
- In the United States, still the world's largest economy, only listed companies are required to publish financial statements. That means only 10,000 or so financial statements are available there too.
And yet, annual accounts have their value
GraydonCreditsafe also uses annual accounts. We have a direct link with the National Bank of Belgium. As soon as annual accounts are published, they are automatically written into our systems and are available to customers.
Why? Because they are simply part of our business and because they belong in a detailed company report. But also, to include specific elements from the annual accounts in the calculation of our scores and indicators.
Annual accounts do help to gain insight into volumes of companies, the size of companies, their payment options, so that you can still find out to some extent whether it is safe to grant credit or not. But annual accounts certainly do not tell you everything.
More than just annual accounts
Annual accounts lift the veil a little but certainly do not tell you everything. On the contrary. That is why GraydonCreditsafe also goes much further than just an analysis of annual accounts. As mentioned, Belgium is paradise on earth when it comes to data. Many official sources (e.g. Crossroads Bank for Enterprises, Belgian Official Gazette and Annexes, ...) are freely available. Add to that the unofficial sources and community data. Precisely because there are so many sources, we know that an annual account alone is not enough and that we need much more to give a correct picture of an organisation.