can read a nutrition label or a baseball box score, you can learn to read basic financial statements. If you can
follow a recipe or apply for a loan, you can learn basic accounting. The basics aren’t difficult and they aren’t
brochure is designed to help you gain a basic understanding of how to read financial statements. Just as a CPR
class teaches you how to perform the basics of cardiac pulmonary resuscitation, this brochure will explain how to
read the basic parts of a financial statement. It will not train you to be an accountant (just as a CPR course will
not make you a cardiac doctor), but it should give you the confidence to be able to look at a set of financial
statements and make sense of them.
begin by looking at what financial statements do.
“Show me the
remember Cuba Gooding Jr.’s immortal line from the movie Jerry Maguire, “Show me the money!” Well, that’s
what financial statements do. They show you the money. They show you where a company’s money came from, where it
went, and where it is now.
are four main financial statements. They are: (1) balance sheets; (2) income statements; (3) cash
flow statements; and (4) statements of shareholders’ equity. Balance sheets show what a company owns and what
it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of
time. Cash flow statements show the exchange of money between a company and the outside world also over a period of
time. The fourth financial statement, called a “statement of shareholders’ equity,” shows changes in the interests
of the company’s shareholders over time.
look at each of the first three financial statements in more detail.
balance sheet provides detailed information about a company’s assets, liabilities and
Assets are things that a company owns that
have value. This typically means they can either be sold or used by the company to make products or provide
services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It
also includes things that can’t be touched but nevertheless exist and have value, such as trademarks and patents.
And cash itself is an asset. So are investments a company makes.