Understanding Bank Financial Statements

Understanding bank financial statements is easy when you go through each statement slowly. The three main financial statements are the income statement, balance sheet and cash flow. A bank’s financial statement is similar to any other financial statement. These statements give you a snapshot of how the bank is doing financially.

Difficulty: Moderately Challenging

Instructions

1. Understand financial statements by reviewing terms related to these statements. There are three main types of bank financial statements: the income statement, the balance sheet and the cash flow statement. To get a thorough understanding of financial statements, do some research online to familiarize yourself.

2. The bank income statement shows total revenues, total expenses and total tax. Notice that this statement starts with revenues, subtracts total expenses and then subtracts taxes. Go through the revenues, expenses and tax; you’ll notice many items within those groups.

3. The balance sheet lists the bank’s total assets, total liabilities and owner’s equity. The formula for the bank’s balance sheet is “assets” minus “liabilities” is equal to “owner’s equity.” The owner’s equity means the value of the bank owner's ownership of the bank.

4. The bank’s cash flow statement is a snapshot of its cash operations. This is a summary of operation activity cash, investing activity cash, finance activity cash and net cash change. This summary traces cash in-flow and cash out-flow.

5. Review the bank’s statement of owner’s equity. This statement records the prior equity, and then adjusts it with investments, withdrawals and income to get the final equity.

Tips & Warnings

• Consistently review the bank's income statements, balance sheets and cash flow statements. Help yourself understand bank financial statements by reviewing terms that aren’t self explanatory. For example, know that “net income from total operations” is money left over after tax and interests are taken out.
• A balance sheet usually lists assets on one side, with liabilities and owner's equity on the other side. The asset total is equal to the total for both liabilities and owner's equity.

Resources

• QuickMBA website on the four financial statements.
• Investopedia dot com on bank financial statements.
• Financial Statements by Thomas R. Ittleson, check your library first to save money.
• Income Statement Definitions, click on the “Balance Sheet link,” and “Cash Flow Statement link,” to review their respective terminology.
• Bank of America Financial Statements.