Proficient in financial statements or falling into the trap?

Investing in this era requires clarity! Accurate information is what reveals the truth, not feelings. Financial statements are official documents that summarize a company’s overall picture, helping investors or creditors understand profitability, asset management, and liquidity clearly.

Financial Statements You Need to Know

Financial statements are not just random numbers; they are mirrors reflecting the true state of the business. Organizations are required to prepare three main statements:

1. Balance Sheet (Balance Sheet)

Provides an overview of financial position at a specific point in time, such as December 31, and consists of three parts:

• Assets - What the company owns (cash, buildings, inventory)
• Liabilities - What the company owes
• Equity - The remaining interest for owners (Assets - Liabilities = Equity)

Reviewing the balance sheet helps you understand the company’s total assets, debt levels, and whether it can settle its obligations.

2. Income Statement (Income Statement)

Tells the story of profit or loss over a period, usually annually:

• Total Revenue - Total Expenses = Net Profit or Loss

Organizations use this statement to:

• Know how much profit they make
• Calculate taxes owed
• Analyze sources and uses of funds
• Plan future finances

( 3. Cash Flow Statement )Cash Flow Statement### Shows cash inflows and outflows from three activities:

• Operating Activities - Cash from core business operations
• Investing Activities - Cash used for purchasing assets
• Financing Activities - Cash from borrowing or dividend payments

This statement is crucial because a company might be profitable but have no cash!

Why Read Financial Statements?

1. Make Smarter Investment Decisions Avoid throwing money blindly; use real data from financial statements to evaluate the company.

2. Understand Profitability See what drives the company’s profits and whether profits are expanding or contracting compared to last year.

3. Assess Financial Balance Check if liabilities relative to assets are in a healthy ratio; is the company safe or risky?

4. Monitor Liquidity and Cash Management Determine if the company has enough cash for operations and debt payments.

What to Look for When Reading Financial Statements

( From the Balance Sheet, ask yourself:

• What is the total value of assets?
• Have liabilities increased or decreased compared to last year?
• What is the Debt-to-Asset Ratio )?

From the Income Statement, ask:

• Is revenue growing?
• Are expenses well-controlled?
• What is the net profit margin (?
• What is EBITDA )Earnings Before Interest, Taxes, Depreciation, and Amortization###?

( From the Cash Flow Statement, ask:

• Is cash from operating activities increasing or decreasing?
• How much is spent on investments?
• What is the cash balance at the beginning and end of the period?

Quick Guide to Reading Financial Statements: General Checklist

For investors, try these 5 steps:

1. Get an Overview - What are the Total Assets and Total Liabilities?
2. Compare Year-over-Year - Are figures growing or shrinking?
3. Analyze Structure - What types of assets dominate? Are liabilities high?
4. Check Liquidity - Is there enough cash and liquid assets?
5. Identify Trends - Are profits steadily growing or volatile?

Key Points in Reading Financial Statements

Advantages:

• Understand the true financial health of the company
• Make informed investment decisions
• Compare different companies
• Assess financial risks

Disadvantages:

• Can be complex, especially for large corporations
• Data may be inaccurate if accounting is flawed
• Historical data doesn’t predict the future
• Numbers alone can’t tell the whole story

Where to Find Financial Statements?

For foreign stocks )such as US stocks(:

• Company Websites - “Investor Relations” sections usually have all financial reports
• Financial Data Websites - Investing.com, Bloomberg, Yahoo Finance, Google Finance
• Analyst Reports - Experts often analyze and summarize financial statements
• Banking Databases - Financial institutions may provide supplementary data

Additional Analysis Methods

After reviewing the basics, you might be interested in:

• Financial Ratios - Current Ratio, Debt-to-Equity, ROE, ROA
• Changes in Equity )Changes in Equity### - Observe changes in share capital, retained earnings, dividends
• Comprehensive Income (Comprehensive Income) - Shows total financial impact, including market value changes

Do Non-Profit Organizations Have Different Financial Statements?

Non-profit organizations (such as associations and foundations) use similar financial statements but focus on:

• Revenue and Expenses instead of Profit and Loss
• Changes in Net Assets (Net Assets) instead of Retained Earnings
• Use of Funds for public welfare rather than profit-making

Summary: Financial Statements Are the Lens of Investment

Financial statements are not as complicated as they seem. By understanding the 3 main statements and asking the right questions, you can see the real picture of a company.

Whether you are a long-term investor, a short-term trader, or interested in real estate or stocks, financial statements are tools that help you make rational decisions, not emotional ones.

So next time you invest, don’t forget to review the company’s financial statements—because that’s where the truth lies!