How do you read a financial statement?

Question

Refer to book store answers need not apply. Lets see some constructive thinking here. Thankyou

Answer 1

Here's my old way and new way of reading financial statements to evaluate the fundamentals of a company (since we're in the investing category)

I used to look at the balance sheet and income statement to see how the company was doing year over year over year. I looked for good revenue/sales growth, and for good growth in net income and earnings per share. If I was going to invest money in a company, i wanted a good one.

I also used to look at various ratios to see for example how old the inventory was or how often they turned it over. Things like that. How old is the fleet of aircraft. How much capital is the company going through and need to go through to maintain what they're doing. Any growth in the forecast? Any new products?

I then went through the footnotes to find the fun little tidbits. These sometimes could make/break a financial statement. Burying extraordinary charges there can definitely affect how the financial statement really looks like, for example.

However, now I just go to one website (there are several good ones) and what used to take me hours, I now do in seconds. Thank heaven for computers!!!

Hope that's what you're looking for!

Answer 2

Read a Financial statement for what it contains which is the score card of the company for an accounting year. For balance sheet gives the Assets, the liabilities and Stock holders equity. The income statment gives the gross and net incomes. Statement of owners equity which is parto of Balance sheet later contains the equity operations of the company, like Tressury operations, buy backs, splits, dividends etc;. The statement of Cash flow shows the amount of cash generated in the Financial year which can be utilised the next year. Now the rest is all creative work which requires more understanding of the subject. I am an MBA in Finance of the 88 batch from AACSB USA.

Answer 3

I don't. That simple. The material is supplied by the company. There is no independent source. It comes from the accounting department. Enron looked good right up to the last second. FNMA cooked their books, too. Seemed that the executive's bonuses were keyed to the profit (or appearance of profit), so numbers (the ones they show you) were fiddled with. And this is nothing new. So, I am somewhat of a maverick. I don't think of myself of buying a company. Just the little alphabet characters that represent their stock. And, as Livermore said, the ticker says it all. And never lies. Think of the eyestrain you could save.

Answer 4

There are whole books written on this subject. The answer is too long and detailed for this forum. Head to a bookstore.