How to Read the Financial Statements for a Corporation

Financial statements can be found in a company's annual report.

Financial statements are required of every public company. If you're thinking about investing in a company or need to research one, the financial statements are the best place to start. The three most popular financial statements are the balance sheet, the income statement and the cash flow statement. The balance sheet provides a snapshot of company assets and liabilities. The income statement provides an overview of the sales and expenses for the fiscal year, and the cash flow statement is an overview of the company's sources and uses of cash.

Instructions

1. Turn to the balance sheet. This is usually the first financial statement published in the company's annual report. It provides a listing of the company's assets and liabilities. The balance sheet equation is assets equals liabilities plus shareholders' equity. Shareholders' equity is often used as a proxy for liquidation value.

2. Go to the income statement. This is an overview of the company's earnings. This financial statement starts with company revenues or sales and then subtracts the cost of goods sold, operating costs, interest expense and the tax provision. The result is net income, which is used to calculate earnings per share.

3. Turn to the cash flow statement. This statement is a combination of both the balance sheet and the income statement. It provides an overview of the sources and uses of cash flow throughout the company. There are three different ways the company can make cash: operations, financing and investments. The cash flow statement provides detail on the cash transactions for each of these segments.

References

• Securities and Exchange Commission: Beginners' Guide to Financial Statements