I’m trying to learn financial investment, so I will first attempt to read financial reports to understand the business activities happening in the world.
Here are some fundamentals to get know about a company:
Income Statement (Profit & Loss): Shows the company’s revenues, expenses, and profits over a specific period. Key metrics to focus on: revenue, gross profit, operating profit, net income. It’s kind of a video shows the activity of the company in a past period. Balance Sheet: Provides a snapshot of the company’s assets, liabilities, and equity at a specific point in time. It gives insight into the company’s financial health and how it’s funded. It’s like a snapshot. Cash Flow Statement: Highlights the company’s cash inflows and outflows over a period. It focuses on operating, investing, and financing activities. A key metric here is free cash flow, which indicates the amount of cash a company has left after capital expenditures. Statement of Shareholders’ Equity: Explains changes in equity from the previous period. Difference of Income Statement and Cash Flow Statement 1. Income Statement (Profit & Loss Statement) What it focuses on:
The Income Statement shows a company’s revenues and expenses over a specific period (e.g., a quarter or a year), and ultimately calculates the net income (profit or loss). It focuses on accrual accounting, which means it records revenues when earned and expenses when incurred, regardless of when the actual cash is received or paid.
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