Blog Single

How to Properly Analyze Company Financial Statements

Obtain the Financial Statements

Access Reports: Obtain the company's financial statements, including the balance sheet, income statement, and cash flow statement.
Annual Reports: Review the annual report and any supplementary notes to understand accounting policies and significant financial events.

Understand the Components of Financial Statements

Balance Sheet

Assets: Review current assets (cash, receivables) and non-current assets (property, equipment) to assess liquidity and long-term investments.
Liabilities: Analyze current liabilities (short-term debt, payables) and long-term liabilities (bonds, mortgages) to evaluate debt levels and financial obligations.
Equity: Examine shareholder equity to understand the company's net worth and capital structure.

Income Statement (Profit and Loss Statement)

Revenue: Evaluate sources of revenue and trends in sales growth over time.
Expenses: Analyze operating expenses (cost of goods sold, administrative expenses) and non-operating expenses (interest, taxes) to assess profitability.
Net Income: Determine net profit or loss to understand overall financial performance.

Cash Flow Statement

Operating Activities: Assess cash generated from core business operations.
Investing Activities: Review cash flows related to investments in assets such as property, equipment, or acquisitions.
Financing Activities: Analyze cash flows from financing activities, including debt issuance, repayments, and dividends paid.