Financial Statements Defined

What are Financial Statements?  In this post I am going to answer the question: What Are Financial Statements?  If you want to learn how to invest in stocks then one of the first things you will need to learn about are financial statements.  Financial statements are a record of a company’s activities, revenues, profits, cash flow and balance sheet.  While a company reports several different required filings, financial statements are one thing a company is required to report that give a potential investor information about what a company is earning.  And, financial statements are key to understanding a stock’s potential revenue and earnings.  So, as you get more information on how to invest in stocks, you will want to learn everything regarding what it takes to analyze a stock for investing.  While in this post I will talk about what is a financial statement, I will go into how to analyze a financial statement in other postings.

Financial Statements are one of the most important aspects of learning how to analyze stocks.  Look for additional information on the financial statements in the Value Investing Video Course – How to Understand Financial Statements.

What is included in financial statements?

There are three sections to a company’s financial statement.  They are:

  1. Income Statement
  2. Balance Sheet
  3. Cash Flow Statement

Income Statement

The Income Statement shows how a company performed over a certain period of time.  An income statement will show total revenues and other income earned by a company.  And, the income statement shows what costs to obtain the revenue and income were incurred during this period of time.  Plus, the income statement will break down profits or losses for the respective company.

Balance Sheet

The balance sheet shows what total equity a company has, and what total shareholder equity there is.  Total equity is determined by total assets less total liabilities.  This gives the total equity that an company will have.  Understanding how much equity a company has will allow a perspective investor to better understand how well a company will perform in years to come as well as how well a company may perform versus its competitors.

Cash Flow Statement

The cash flow statement breaks down the individual cash expenses in a manner that helps show what what the individual business expenses would look like.  The cash flow statement is useful as some of the information contained within is amounts spent on CapEx, and other metrics tanta are useful to project where a company’s financial well-being will be in the future.

What do Financial Statements look like?

The respective financial statement is broken down into an accounting method with various lines.  The very top is the revenue generated by a company or firm.  Then, costs are shown below that working downward to get to the point where net earnings are shown at the bottom line.

How do you use a Company’s Financial Statements?

Understanding Financial Statements is one of the biggest building blocks of knowing what to look for when you go to analyze a company.  In the Stock Market For Beginners – How To Invest in Stocks, the video series breaks down all you need to understand how to invest in stocks.

Learning how to understand a financial statement is by no means difficult.  An perspective investor would want to know how to break down any company’s financial statements as to ensure a solid understanding of any one company’s financial health.

Where do you get a company’s Financial Statements?

Every company that is publicly traded is required by the Securities & Exchange Commission, mandated by Federal Law, to provide financial statements to the exchanges, making these public documents, provide these documents that audit the financial performance of a company to the SEC, and to any potential and current investors.  These financial statements are public information and audited to ensure accuracy and compliance with GAAP standards.

If you are looking to invest in a company you would want to thoroughly understand a company’s financial position as best as possible.  The financial statements are the first place to look for these things.

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