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financial statements

How to Read a Set of Financial Statements

The small business owner is a busy person. From watching sales numbers to hiring new employees, they have limited free time. When their accountant hands them the monthly set of financial statement they first look at sales and net income. 

But what about the rest of the financial statements? 

Reading all the statements is key to keeping a pulse on the company.  Understanding the statements allows the owner to identify the major accounts that affect cash and keep an eye on overall liquidity.

The ability to read a set of financial statements is a key skill to have in all industries, from public companies to closely held partnership. Understanding the affects financial items have on the operations is paramount to survival. This is why a CFO is so valuable to an organization. 

But if the owner only reviews the statements once a month how can they develop the skill necessary to read them?

In this video I will go over the major areas to look at when you are new to reading a set of financial statements. I cover:

  1. Where to start.
  2. How the basic financial statements tie to one another
    1. Balance sheet
    2. Income statement
    3. Cash flow statement
  3. Major areas to consider when reading the statements and how each area ultimately affects cash.
    1. Cash
    2. AR
    3. Current Asset
    4. Current Liabilities
    5. And more.
  4. The core understandings to know when you have finished reading your statements.

When you are done reading your statements, you should be able to:

  1. Identify where cash went or where it is coming from.
  2. Any issues with AR and Revenue.
  3. Understand the overall make up of current assets and how much is liquid.
  4. Understand the relationship between current assets and current liabilities.
  5. Identify Revenue and Expense accounts for further analysis.
  6. Identify Cash from Operations.

For additional information regarding this topic see the following articles:

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Post Author: Steve