Understanding Financial Statement

Understanding Financial Statement

Understanding Financial Statement

What is a financial statement? In layman's term, financial statement gives you where a company's money came from, where it went and where it is now. Understanding a financial statement can be hard to some persons but once you learned the basics of financial statement, it will be easy just like reading an electricity, credit card bill or bank statement of account.

Actually, is is not hard. If you know how to read a billing statement from banks or service companies, you will know how to read a financial statement. Understanding fundamental financial statement is not difficult, it just requires little patience.

Maybe you are wondering why do you have to understand a financial statement. As I said before, a financial statement will impart you an idea of a company's financial situation. It is much important for a person to be familiar with the financial situation of a firm before he purchases its stocks or any investment it sells.

A financial statement will tell you whether a firm has many assets or many liabilities. It is designed in such a way it is easily understand by common persons who are not inclined to complicated financial accounting or calculations. It is absolutely simple and usually it is in tabulated form just similar to any kinds of billing statements.

A financial statement may be categorized into four parts: balance sheets, income statements, cash flow statements and statements of shareholder's equity. Balance sheets view what a firm owns or its belongings and what it owes or liabilities at a fixed point in time for example in a financial year. Income statement is a company's financial statement that indicates how the revenue is transformed into the net income.

In a financial statement, a cash flow statement specifies how cash comes in and out in the balance sheet and income of the company and gives the investing and financing activities of the company. The fourth part is the statement of shareholder's equity that outlines the changes on the company's shareholders over the time.

In summary, a financial statement is a helpful tool to evaluate if the company is an excellent company to buy in terms of investing in its stocks. It is the representation of the financial condition of the company and it gives the over-all performance done by the company in a certain period.

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