There are three basic quarterly or annual financial statements that each company publishes:
• Balance Sheet
Shows the overall financial status of a company at a given point of time.
• Income Statement
Shows the revenues, expenses, profit over a one year period.
• Cash Flow Statement
Similar to the income statement; but does not include depreciation, amortization etc.
A short description of each one follows.
Income statement
The income statement provides the most basic financial info on a company i.e. revenues,
expenses and profit during a quarter or a whole year. In effect, it reflects the performance of
the company during that period of time. It can generally be described by the following formula:
Revenue – All Expenses = Income
Key points:
• Revenue
The amount of money the company received during the period in question. This is considered
by many the most important piece of information about a company.
• Expenses
- Cost of Revenue
Shows the production costs that brought the revenue. It includes cost of raw material, worker
salary etc.
- Operating Expenses
Costs of R & D and administration, including marketing, are under operating expenses.
- Interest Expenses & Tax
All interest (e.g. from loans) and tax paid by the company.
- Non-recurring Events
Usually one-time expenses that don’t fall in the other categories.
• Net Income
The actual profit of the company after all expenses are deducted from revenue.
Balance Sheet
It is called a “balance sheet” because it has to show that the basic company figures balance
out. That is:
Liabilities + Stockholder Equity = Assets
The Balance Sheet is a snapshot of a company’s financial status at a given point in time. One
balance sheet cannot give information about growth rate etc, but can show if a company is
healthy, or owes too much.
Key points:
• Assets (Depreciated Values)
- Current Assets
Company assets that can be quickly converted to cash. Apart from actual cash, unsold inventory
is an example of current assets.
- Non-current Assets
Other assets, like equipment, property etc, that cannot be easily converted to cash.
• Liabilities
- Current Liabilities
Short term liabilities. For example bills that have to be paid before the next statement.
- Non-current liabilities
It is favorable for a company to have Non-Current liabilities than Current ones, as this would not
always mean bad health status for a company.
• Stockholder Equity (Internal Value)
After subtracting the liabilities from the assets, stockholder equity reflects the current value of
the company that stockholders own.
• Net Tangible Assets (Book Value)
By subtracting intangible assets and goodwill from the equity, we get the book value of the
company, which shows how much we would sell all tangible assets for (buildings, inventory,
materials etc).
Cash Flow Statement
The cache flow statement is similar to the income statement; however it does not include non cache
charges and focuses on cache earnings before depreciation or amortization.
Key points:
• Cash Flows from Operating Activities
All the money that the company made or lost through its normal operating activities.
• Cash Flows from Investing Activities
Investing activities can include any third party bonds/shares/funds bought or sold, as well as
property & infrastructure investments.
• Cash Flows from Financing Activities
Financing activities include borrowing or loaning money and money spent or received through
company stocks / bonds.
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