What are some important things to look for in a financial report? A company’s financial report is a barometer for the health of its business. As an investor, you want to gauge how good of an investment a prospective company may be. A financial report will be one of your main tools in determining a company’s health.
Financial reports are filled with information including income, debt, the company’s mission statement, forward looking earnings, and auditing reports. As an investor you will want to pay particular attention to the financial statements. Here are three of the most important that you should look at.
Balance Sheet
The Balance Sheet is a financial statement that shows a company’s assets, liabilities, and shareholder equity. This data is shown at a specific point in time and can illustrate overall health and financial positions.
Income Statements
An Income Statement shows a company’s financial performance over a given time period. By looking at a company’s income over a specific time period can tell you if a company is healthy and growing. It can also reveal the opposite, in which case you may want to avoid that particular investment opportunity.
The bottom line will be one of your top priorities to examine as an investor. You want to know what a company is earning, how their sales are growing (or declining), and the general overall health of the organization.
Comparing earnings and revenue to a stock’s price may tell you if it is a good investment.
Cash Flow Statements
A Cash Flow Statement gives a detailed picture of the flow of a company’s cash during an accounting period. The statement shows you where a company received and spent cash, and it reconciles beginning and ending cash balances. Understanding cash flows is important for valuing a business, understanding liquidity, and understanding where and how cash is generated and used.
A cash flow statement measures how well a company manages its cash positions. As an investor, these statements will give you knowledge of how well cash is generated and how effectively debts are paid and investments in operations are made.
Wrapping Up
So, what are some important things to look for in a financial report? Studying a company’s balance sheet, their income statement, and their cash flow statement can give you a good indication of the overall health of the business. There are other metrics that investors look at of course, but these main financial statements should take precedence over opinion and generalizations about a company.
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Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.
