Header Ads

Financial Statements. As easy as ABC.

FINANCIAL STATEMENTS

Understanding financial statement for beginner


Numbers, numbers, and more numbers. For any individual who has no accounting or financial background, it is hard to understand financial statements. In fact, one would tremble upon hearing the word "financial statement". Nevertheless, reviewing and analysing a company's financial statement is a compulsory step to take before buying any security, especially for fundamental analysis believers.

This is because financial statements give us a picture on the company's performance, strength and liquidity of a company for a certain period of time or at a specific point of time.  It shows how different operations have affected the financial aspect of a company. In fact, financial statements are the best tools to spot early signs of deterioration of a company.

Generally, they are the formal records of a company’s financial position and financial activities of a company. A company's financial statements could be found in its annual report, as well as in its quarter report.

There are generally four types of financial statements, as show below:

What is financial statement?

1. BALANCE SHEET
List out the company’s assets, liabilities, and owner’s equity as of a specific date.
The basic accounting equation applies here where,
Assets = Liabilities + Owner’s Equity
2. INCOME STATEMENT
Reports a company’s revenues, expenses, and net income or net loss for a specific period. Simply, a company is making profit when total revenues > total expenses during that period of time.
3. CASH FLOW STATEMENT
Serve as the summary on cash inflow and cash outflow during a specific period. As the name implied, it only reports transaction that is done through cash. The cash flow is further separated into three categories that are operating, investing and financing.
4. STATEMENT OF OWNER’S EQUITY
Reports the changes in owners’ equity in a company during a specific period of time. For instance, it tells the movement of a big shareholder whether he is increasing or decreasing the amount of stock he is holding.

No comments

Powered by Blogger.