4PwC | Basic Understanding of a Company's Financials
Financial statements are written records that illustrates the business activities and the financial performance of a company. In
most cases they are audited to ensure accuracy for tax, financing, or investing purposes.
A methodically work through of the three financial statements in order to assess the Financial health of a company.
Balance Sheet
Income Statement
Statement of Cash Flows
The financial statements
• Statement of financial position
• Statement of operation/profit and loss
Balance Sheet is a snapshot at a point in time. On the top half you
have the company’s assets and on the bottom half its liabilities and
Shareholders’ Equity (or Net Worth). The assets and liabilities are
typically listed in order of liquidity and separated between current and
non-current.
The income statement covers a period of time, such as a quarter or
year. It illustrates the profitability of the company from an accounting
(accrual and matching) perspective. It starts with the revenue line and
after deducting expenses derives net income.
The cash flow statement look at the cash position of the company .
It answers it answers the questions ; How much of the organisation’s
cash goes to its creditors and shareholders? Does it keep enough for
its own investment and growth? has 3 components cash from
operations, cash used in investing, and cash from financing. It
“undoes” all of the accounting principles and shows the cash flows of
the business.
Source CFI