Reading financial statements can be tricky business if you’re just getting started in the investing game. But if you invest based on company fundamentals, knowing how to navigate an income statement, balance sheet, or statement of cash flows is absolutely essential.
That’s why I wrote a series on getting started with financial statements for TheStreet.com a while back… here they are:
First of all, the question should probably be “What is income?” For a company, as with an individual, net income is “take-home” pay. That means it’s the money that a company records as profit at the end of “the day.” The income statement is the financial statement that’s used to get to that oh-so-important number.
Simply put, the balance sheet is one of the most important financial documents you can use to evaluate a company’s fundamentals (“Getting Started: Fundamental Analysis”). As one of the principal corporate financial statements, the balance sheet’s job is to essentially tell investors where a company stands financially.
The balance sheet consists of two main sections: first, assets (usually presented on the left) and second, liabilities and shareholders’ equity (usually presented on the right).
Cash is the lifeblood of most companies, and many a company has crumbled from a lack of it. Why is it then that the statement of cash flows is probably the least understood of the big three financial statements? It’s time to get in the know about cash flow.