Understanding Company Financial Statements

Breakdown of Financial Statements:

• Income Statement: Shows a company’s revenue, expenses, and profits over a specific period. Key metrics include gross profit, operating income, and net income.
• Balance Sheet: Provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time. Key components include current assets, long-term assets, current liabilities, and long-term liabilities.
• Cash Flow Statement: Details the inflows and outflows of cash from operating, investing, and financing activities. Key sections include cash from operations, cash from investing, and cash from financing.

Key Financial Ratios and Metrics:

• Earnings Per Share (EPS): Measures profitability per share of stock.
• Price-to-Earnings (P/E) Ratio: Compares a company’s stock price to its earnings per share.
• Return on Equity (ROE): Measures the return generated on shareholders’ equity.

Using Financial Statements for Investment Decisions:

Analyze financial statements to assess a company’s profitability, liquidity, and solvency. Compare financial ratios to industry benchmarks and historical performance to make informed investment choices.