01. KEY TAKEAWAYS
Financial statements are written records that convey the business activities and the financial performance of a company.
- The balance sheet provides an overview of assets, liabilities, and stockholders’ equity as a snapshot in time.
- The income statement primarily focuses on a company’s revenues and expenses during a particular period. Once expenses are subtracted from revenues, the statement produces a company’s profit figure called net income.
- The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations, fund its operating expenses, and fund investments.
02. Using Financial Statement Information
Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about its future direction of the company’s stock price. One of the most important resources of reliable and audited financial data is the annual report, which contains the firm’s financial statements.
The financial statements are used by investors, market analysts, and creditors to evaluate a company’s financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows.