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All trading basics

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.