Financial statements of companies help investors gauge how good the company is at making money, what does it own and owe, and what is the potential for its growth. Public listed companies are required by US securities laws to release an accounting and financial statement quarterly. Various analysts who follow company stocks can predict estimates ahead of the official earnings report.
The annual report is due 90 days after the close of a company's fiscal. The same information also has to be reported quarterly. These reports have a lot of useful information, such as income statement, balance sheet, and cash flow statement. As long as company is meeting or exceeding the expectations of it, its stocks appreciate in value.
The various components are as follows:
Balance Sheet:
The balance sheet (statement of financial position) provides a snapshot of the company's financial position, providing details of its assets, liabilities, and shareholder equity. It actually shows the "balance" between these three components. Assets are things that the company owns. They can be sold or used by the company. Assets include physical things, such as property, equipment, and machinery and also include intangible things, such as trademarks and patents. Liabilities include money that the company owes to others. For example, bank loans, rent for the building, payroll of employees, or even obligations to provide goods or services to customers in future. Shareholders' equity, or capital, is the money that would be left after they company sold all assets and cleared its liabilities. This money belongs to the shareholders or owners.
The balance sheet (statement of financial position) provides a snapshot of the company's financial position, providing details of its assets, liabilities, and shareholder equity. It actually shows the "balance" between these three components. Assets are things that the company owns. They can be sold or used by the company. Assets include physical things, such as property, equipment, and machinery and also include intangible things, such as trademarks and patents. Liabilities include money that the company owes to others. For example, bank loans, rent for the building, payroll of employees, or even obligations to provide goods or services to customers in future. Shareholders' equity, or capital, is the money that would be left after they company sold all assets and cleared its liabilities. This money belongs to the shareholders or owners.
Therefore,
Assets = Liabilities + Shareholders' equity
In a balance sheet, assets are listed on left. On right, are the liabilities and shareholders' equity. Assets are listed based on how quickly they can be converted into cash. Liabilities are listed based on their due dates, that is, current or long term. Shareholders' equity is the amount owners invested in the company's stock. Some companies distribute their earnings in the form of dividends.
Income Statement:
The income statement (or profit and loss statement) provides a summary of a company's earnings for the year as a difference between revenue and expenses. The phrase "bottom line" originates from income statement. It shows the revenue, net income, and earnings per share of the company.
The income statement (or profit and loss statement) provides a summary of a company's earnings for the year as a difference between revenue and expenses. The phrase "bottom line" originates from income statement. It shows the revenue, net income, and earnings per share of the company.
Income statements include earnings per share (EPS). This is the money shareholders would receive if the company distributes its earnings. At the top, the statement lists the sales made during period. From top as it moves down, the statement lists deduction for costs or other operating expenses. After deducting all expenses, it gives the "bottom line" or the net earning. Depreciation is also deducted from profit, which is a measure of the wear and tear of assets, such as machinery. It also accounts for interest income and interest expense. Income tax is deducted at the bottom line. EPS is calculated by taking the total net income and dividing it by the number of outstanding shares of the company.
Cash Flow Statement:
Cash flow is a summary of a company's inflow and outflow of cash. This tells investors whether the company has generated cash. The statement has three parts:
Cash flow is a summary of a company's inflow and outflow of cash. This tells investors whether the company has generated cash. The statement has three parts:
1. Operating activities
2. Investment activities
3. Financing activities
2. Investment activities
3. Financing activities
Operating activities analyzes a company's cash flow from net income or losses. The second part shows cash flow from investing activities, such as purchase of property or equipment. Financing activities show cash flow from financing activities, such as selling or stocks or bonds.