How to Read a Financial Statement

A financial statement is a company’s report card. It shows a company’s performance over a particular period of time, usually every fiscal quarter. Generally, a company’s financial statement consists of three different reports, including cash flow statements, balance sheets, and income statements. Your ability to read financial statement allows you to know where a company has made or lost money, how it is being spent, and where it stands financially. Here are the elements of a financial statement.

Cash Flow Statements

Cash flow statements show the reports on the outflow and inflow of the company’s money. The statement is separated into operating activities, investment activities, and financing activities. All these three activities combine to show the changes in a company’s capital position over a certain period of time.

Balance Sheets

Balance sheets represent a company’s assets, net worth, shareholder equity, or liabilities of the company. Liabilities contain all the money owned by the company, and this could include tax liabilities, loans, rents on real estate. It can also show money borrowed from banks and employee payrolls.

Assets comprise of all the property the company owns, including machinery, real estate, and bank accounts. While shareholder equity shows the net worth of the company if it were to be liquidated, the amount each of the shareholders would get after the company’s creditors has been paid.

Income Statements

Income statements represent the revenue the company generated over a specified time period and the amount that was spent to take in the revenue. On the bottom line, this statement shows the company net earnings or losses and start with all the money the company generated at the top, and then it goes through all the expenses the company took to make revenue, and the net figure is written on the bottom.

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