Previously, we explored what a bond is.
Now, let’s find out what are financial statements.
But before that, here’s a quote by the Oracle of Omaha, Warren Buffett, on the subject:
“You have to understand accounting and you have to understand the nuances of accounting. It’s the language of business and it’s an imperfect language, but unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself.”
The word ‘financial’ may sound intimidating, especially when coupled with the word ‘statement’.
If you are still reading this, congratulations for taking your first step to the world of financial literacy.
Financial statements are records of a company’s financial performance.
They are just like a student’s report card and give an idea of what is going on with a company’s finances.
Financial statements are broken down into the following three segments:
- Income statement (or profit and loss statement) — shows how much a company has made or lost in any given period.
- Balance sheet (or statement of financial position) — gives a snapshot in time of the company’s assets, liabilities, and shareholders’ equity.
- Cash flow statement — shows the company’s ability to generate cash to fund its operations, as well as investments and debt obligations.
Now that you know the basics of what financial statements are, you can dive deeper into them by clicking on the links above to each of the three different segments.
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