Conclusion and Resources
One of the most important areas for any investor to look when researching a company is the financial statements. It is essential to understand purpose of each part of the statement and how to interpret it.
Let's recap what we've learned:
- Financial reports are required by law and are published both quarterly and annually.
- Management discussion give investors a better understanding of what the company does and usually points out some key areas where they did well.
- Audited financial reports have much more credibility than unaudited ones.
- The balance sheet lists the assets, liabilities, and shareholder's equity.
- For all balance sheets: Assets = Liabilities + Equity. These two sides must always equal each other (balance).
- The income statement includes figures such as revenue, expenses, earnings, and earnings per share.
- For a company, the top line is the revenue while the bottom line is net income.
- The income statement takes into account some non-cash items such as depreciation. The cash-flow statement strips away all non-cash items and tells you how much actual money the company generated.
- The cash-flow statement is divided into three parts: cash from operations, financing, and investing.
- Always read the notes to the financial statements, they give you more in-depth information on a wide range of figures reported in the 3 financial statements.