12 Mar How To Use Financial Reports For Decision Making
Understanding financial reports is crucial to making sound investment and business decisions. There are three main types of financial reports, there is the Income statement, the Balance Sheet, and the Cash Flow Statement. There are other financial reports such as the annual report, and these reports are best left to Mutual Fund managers, seeing as they are often 400 pages long. Income Statement The income statement is the first financial report and the number you always want to look for here is profit, profit, profit! It does not matter how much revenue (sales) the company is making, if they don’t have the «bottom line» (profit) to prove the worth of their operations then they don’t have anything worth talking about. (A rare exception is Amazon Inc., which had a very large burn rate on cash) Everything else on the income statement is information that only the most experienced financial adviser will be able to factor into a intrinsic value computation. Balance Sheet The balance sheet shows Assets, Liabilities, and Stockholders Equity or as I like to call them, «The Big Three». There are two types of assets, current and long term. Current assets are assets such as cash short-term investments and likewise, and long-term are to be held for one year or longer. Think of liabilities as what the company owes. If the company owes a lot of money to people and other companies, then it will have a large number for it’s liabilities section. This is not good! A company should always have more assets than it does liabilities. Cash Flow Statement The cash flow statement is a very important statement to understand. Especially important is the operating section. This shows how well the company did in the current quarter as far as profit earned from operations is concerned. There’s that word again, profit. If the operation from activities shows a negative number, be very careful about pursuing anything with this company. -What’s most important?- Understanding every financial report is important. If you want more information about financial statements you can find them at www.sec.gov/investor/pubs/begfinstmtguide.htm It is very important to understand financial reports because if you don’t you could end up buying the wrong company and costing yourself thousands of dollars. If your company or someone’s company you are looking at isn’t making a profit, something needs to change and fast. In conclusion, the most important thing to know and look for, is profit. Category:Home › Other • Pomegranates: A newly discovered superfood • Where did the joke why did the chicken cross the road come from and why is it funny? • Can mothers diagnosed with bipolar disorder make good parents? • Spiritual evolution of human consciousness • Tips for getting a college basketball scholarship • Living with Pseudotumor cerebri (PTC) • Caring for the caregiver • Technologys impact on society
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