How To Read Financial Statements

There is actually another way of expressing the SEC viewpoint, with the company financials.  The SEC was established to make sure that companies play by the rules and provide good, reliable information to the end user.

There are actually four basic financial statements and the two add – on features of the reports that tells the investors of how a company is doing, and according to the SEC’s “Beginners’ Guide to Financial Statements.” These tools would usually appear in the annual or quarterly reports, and they are issued at the close of each of the fiscal or business period every year.

1. BALANCE SHEET – The balance sheet is actually a snapshot of the financial condition of a company, and that is generally on the last day of a fiscal period. It would usually start with the tally of the Assets; these are the resources that are used to generate profits.   It then lists the companies liabilities and the owners equity.
2. INCOME STATEMENT – The Income Statement will explain how much a profit an enterprise would retain for its owners that is over an operating period. The Income Statement of a company is what is left after the total revenues minus the expenses of the company.



3. CASH FLOW – The Cash Flow statement would show us the actual outlays and the intakes of the cash from the transactions. At the end of every period, the investors would learn whether the cash flow either has a positive or negative.  Cash is king.  A company can play games with the income statement and the balance sheet, but the amount of cash generated by their business indicates how the company is doing.  Are they out to make money legitimately?  The cash flow statement will help to show how they are doing.
4. SHAREHOLDERS’ EQUITY – A Shareholders’ Equity is actually the reporting of the breakdown of the companies equity section of the balance sheet.

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