4 financial statements every investor needs to know:
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Stockholders' Equity Statement
Working 15 years in finance, I work with financials daily. Here's how you understand & analyze financial statement:
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Stockholders' Equity Statement
Working 15 years in finance, I work with financials daily. Here's how you understand & analyze financial statement:
Financial statements are important for investors because they provide insights into a company's financial performance & health.
Analyzing financials can help you make better-informed decisions on buying, holding, or selling stocks.
Analyzing financials can help you make better-informed decisions on buying, holding, or selling stocks.
The income statement shows a company's revenues, expenses, and net income.
It helps investors understand the company's profitability and its ability to generate income.
The income statement is divided into two main sections, income and expenses.
It helps investors understand the company's profitability and its ability to generate income.
The income statement is divided into two main sections, income and expenses.
An income statement has 2 sections:
(1) Income: covers revenues earned during the period (sales, interest income, investment gains, etc)
(2) Expense: covers costs during the period (costs of goods sold, selling & administrative expenses, interest expenses, etc)
(1) Income: covers revenues earned during the period (sales, interest income, investment gains, etc)
(2) Expense: covers costs during the period (costs of goods sold, selling & administrative expenses, interest expenses, etc)
The net income (or loss) for the period is determined by subtracting the expenses from the revenues.
This amount is then reported at the bottom of the income statement, along with any applicable taxes and the net income (or loss) per share of common stock.
This amount is then reported at the bottom of the income statement, along with any applicable taxes and the net income (or loss) per share of common stock.
3 items to analyze in an income statement:
1) Profit margins: Assess the portion of revenue turned into profits; higher margins suggest efficient expense management
2) Expense management: Ensure the company controls expenses; expenses rising faster than revenues are a red flag
1) Profit margins: Assess the portion of revenue turned into profits; higher margins suggest efficient expense management
2) Expense management: Ensure the company controls expenses; expenses rising faster than revenues are a red flag
3) Revenue growth: Observe if the company's revenue is increasing or decreasing over time, indicating its overall health and growth prospects.
Now let's talk about the balance sheet:
Now let's talk about the balance sheet:
The balance sheet helps investors understand a company's financial position at a point in time, including its liquidity & solvency.
It shows the company's assets, liabilities, and equity.
Assets include things like cash, accounts receivable, and property, plant, and equipment.
It shows the company's assets, liabilities, and equity.
Assets include things like cash, accounts receivable, and property, plant, and equipment.
Liabilities include things like accounts payable, taxes payable, and long-term debt.
Equity represents the ownership interests of the company's shareholders. The balance sheet helps investors understand the company's net worth.
Equity represents the ownership interests of the company's shareholders. The balance sheet helps investors understand the company's net worth.
3 items to analyze in a balance sheet:
1) Asset quality: Check for a strong, diverse asset base, which can support growth & withstand economic downturns
2) Working capital: Ensure there are enough resources to cover short-term obligations, indicating greater financial stability
1) Asset quality: Check for a strong, diverse asset base, which can support growth & withstand economic downturns
2) Working capital: Ensure there are enough resources to cover short-term obligations, indicating greater financial stability
3) Debt levels: Assess if the company carries excessive debt, which can increase financial risk and vulnerability during economic downturns.
Let's talk about the statement of cash flows:
Let's talk about the statement of cash flows:
The statement of cash flows shows the inflows & outflows of cash.
It can be used to assess the company's ability to pay its debts and generate cash.
It's divided into three sections:
• Operating activities
• Investing activities
• Financing activities
It can be used to assess the company's ability to pay its debts and generate cash.
It's divided into three sections:
• Operating activities
• Investing activities
• Financing activities
Operating activities include the cash flows from a company's core business operations.
This includes cash received from customers, cash paid to suppliers and employees, and other operating expenses.
This includes cash received from customers, cash paid to suppliers and employees, and other operating expenses.
Investing activities include the cash flows from the purchase and sale of long-term assets, such as property, plant, and equipment.
This also includes investments in other companies, such as through the purchase of stocks or bonds.
This also includes investments in other companies, such as through the purchase of stocks or bonds.
Financing activities include the cash flows from the issuance and repayment of a company's debt and equity.
This includes the issuance of new shares of stock, the repayment of loans, and the payment of dividends to shareholders.
This includes the issuance of new shares of stock, the repayment of loans, and the payment of dividends to shareholders.
The statement of cash flows shows how a company is generating and using cash, which is important for investors to understand the company's financial health and ability to meet its financial obligations.
3 items to analyze in a cash flow statement:
1) Capital expenditures: Assess if the company is investing in its business, suggesting good growth prospects.
2) Financing activities: Examine new debt or equity issuance, as it affects the company's financial risk profile.
1) Capital expenditures: Assess if the company is investing in its business, suggesting good growth prospects.
2) Financing activities: Examine new debt or equity issuance, as it affects the company's financial risk profile.
3) Operating cash flow: Check if the company generates enough cash from operations to cover expenses and debts, indicating financial health.
Now let's talk about the statement of stockholders' equity:
Now let's talk about the statement of stockholders' equity:
The statement of stockholders' equity shows changes in a company's equity over a specific period of time.
It helps investors understand how a company is financing its operations and growth, and its ability to generate profits and distribute them to its shareholders.
It helps investors understand how a company is financing its operations and growth, and its ability to generate profits and distribute them to its shareholders.
The statement of stockholders' equity is divided into two sections:
• The beginning balance is the total equity at the beginning of the period
• The changes during the period include transactions that have occurred since the beginning of the period.
• The beginning balance is the total equity at the beginning of the period
• The changes during the period include transactions that have occurred since the beginning of the period.
2 items to analyze in stockholders' equity:
• Equity growth: This can be a good indication of the company's financial health and growth prospects
• Financial leverage: High levels of debt can increase a company's financial risk & make it more vulnerable to economic downturns
• Equity growth: This can be a good indication of the company's financial health and growth prospects
• Financial leverage: High levels of debt can increase a company's financial risk & make it more vulnerable to economic downturns
The statement of stockholders' equity typically includes the following items:
• Common stock: This is the amount of capital that has been contributed by the company's shareholders in exchange for common stock.
• Common stock: This is the amount of capital that has been contributed by the company's shareholders in exchange for common stock.
• Additional paid-in capital: The amount of capital that has been contributed by shareholders in excess of the par value of common stock
• Retained earnings: The amount of earnings the company has retained since its inception, after deducting dividends paid to shareholders
• Retained earnings: The amount of earnings the company has retained since its inception, after deducting dividends paid to shareholders
• Net income (or loss): This is the company's net income (or loss) for the period, which is determined by subtracting the company's expenses from its revenues.
• Dividends: This is the amount of cash that the company has paid to its shareholders as dividends.
• Dividends: This is the amount of cash that the company has paid to its shareholders as dividends.
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