Reading A Companies Financial Statement

Reading a company’s financial statements can give you valuable insights into its financial health and performance. It can help you understand the company’s revenues, expenses, assets, and liabilities, as well as its overall financial position. In this article, we’ll walk through the different types of financial statements and how to read them.

There are four main types of financial statements: the balance sheet, the income statement, the statement of cash flows, and the statement of shareholders’ equity. Each of these statements provides important information about a company’s financial position, and they are typically presented in a standardized format to make them easier to read and compare.

Balance Sheet

The balance sheet is a snapshot of a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and equity. Assets are resources that a company owns, such as cash, inventory, and property. Liabilities are obligations that a company owes, such as loans and accounts payable. Equity represents the residual ownership interest of the shareholders in the company, and is the difference between the assets and liabilities.

• Assets: Look for the types of assets a company has and their relative importance. For example, a company with a lot of fixed assets (such as property and equipment) may be less liquid than a company with a lot of cash and other current assets.
• Liabilities: Look at the company’s debts and other obligations, and consider their size and terms. A company with high levels of debt may be more risky than a company with low levels of debt.
• Equity: Look at the company’s equity and consider how it has changed over time. A company with a growing equity base may be in a stronger financial position than a company with a declining equity base.

Income Statement

The income statement shows a company’s revenues and expenses over a specific period of time, usually a fiscal year or a quarter. Revenues are the income that a company generates from its operations, while expenses are the costs incurred in generating those revenues. The net income, or profit, is the difference between revenues and expenses.

• Revenues: Look at the company’s revenue growth over time and compare it to industry benchmarks. A company with strong revenue growth may be more attractive than a company with stagnant or declining revenues.
• Expenses: Look at the company’s expenses, particularly its cost of goods sold, selling and general expenses, and research and development expenses. These expenses can give you insights into the company’s business model and competitive position.
• Net income: Look at the company’s net income (or profit) and consider how it has changed over time. A company with consistently high net income may be more attractive than a company with volatile or declining profits.

Statement of Cash Flow

The statement of cash flows shows how a company generates and uses cash over a specific period of time. It shows the cash inflows, or sources of cash, such as revenue from sales and loans, as well as the cash outflows, or uses of cash, such as payments to suppliers and employees. The net cash flow is the difference between the cash inflows and outflows.

• Cash inflows: Look at the sources of cash for the company, such as revenue from sales and loans. Consider how these sources have changed over time and how stable they are.
• Cash outflows: Look at the uses of cash for the company, such as payments to suppliers and employees. Consider how these uses have changed over time and how they may impact the company’s financial position.
• Net cash flow: Look at the net cash flow and consider how it has changed over time. A company with positive and growing net cash flow may be in a stronger financial position than a company with negative or declining net cash flow.

Statement of Shareholder Equity

The statement of shareholders’ equity shows the changes in a company’s equity over a specific period of time. It lists the contributions of shareholders, such as investments and dividends, as well as any changes in the value of the company’s assets and liabilities.

• Contributions of shareholders: Look at the investments and dividends that shareholders have made in the company and consider how they have changed over time.
• Changes in value of assets and liabilities: Look at any changes in the value of the company’s assets and liabilities and consider how they have impacted the company’s equity.
• Overall changes in equity: Look at the overall changes in the company’s equity and consider how they have changed over time. A company with a growing equity base may be in a stronger financial position than a company with a declining equity base.

To read these financial statements, it’s important to pay attention to key financial metrics such as the company’s revenue growth, net income, and cash flow. You should also look for trends over time, and compare the company’s financial performance to industry benchmarks or to its own performance in previous periods.

In addition to these four main financial statements, a company may also provide other financial information, such as notes to the financial statements and management’s discussion and analysis (MD&A). The notes provide additional details and explanations about the company’s financial statements, while the MD&A offers insights into the company’s financial performance and future prospects.

Using SEDAR For Financial Statements

SEDAR (System for Electronic Document Analysis and Retrieval) is a publicly-accessible database that allows you to access the documents and information that public companies and investment funds are required to file with the Canadian Securities Administrators (CSA).

To use SEDAR, you can follow these steps:

1. Go to the SEDAR website (www.sedar.com).
2. On the homepage, click on the “Search Public Company & Investment Fund Filings” link.
3. In the search box, type in the name of the company or investment fund that you want to search for. You can also narrow your search by using the filters on the right side of the page, such as the document type or filing date range.
4. Click the “Search” button to view the search results.
5. Click on the name of the company or investment fund to view the list of documents that are available for that entity.
6. To view a specific document, click on the document title. The document will open in a new window in a PDF format.
7. You can also use the “Advanced Search” option on the SEDAR homepage to search for specific documents or information using more detailed criteria.

In addition to searching for documents, SEDAR also allows you to set up email alerts to receive notifications when new documents are filed by a specific company or investment fund. To do this, you can click on the “Email Alerts” link on the SEDAR homepage and follow the prompts to set up your alerts.

SEDAR is a valuable resource for investors, analysts, and others who want to access financial and other information about publicly-traded companies and investment funds in Canada. By using SEDAR, you can easily access and review the documents and information that these entities are required to file with the CSA.

In summary, reading a company’s financial statements can give you valuable insights into its financial health and performance. By understanding the different types of financial statements and key financial metrics, you can make informed decisions about investing in or working with a company.

Here are some common financial statement acronyms:

1. P&L: This stands for “profit and loss,” and it refers to the income statement. The P&L shows a company’s revenues and expenses over a specific period of time, and it is used to calculate the net income or profit.
2. EBITDA: This stands for “earnings before interest, taxes, depreciation, and amortization.” EBITDA is a financial metric that measures a company’s profitability, excluding certain non-cash expenses such as depreciation and amortization.
3. ROA: This stands for “return on assets,” and it is a financial ratio that measures a company’s profitability in relation to its total assets.
4. ROE: This stands for “return on equity,” and it is a financial ratio that measures a company’s profitability in relation to its shareholder equity.
5. FCF: This stands for “free cash flow,” and it is a financial metric that measures the amount of cash a company generates after accounting for its capital expenditures.
6. EPS: This stands for “earnings per share,” and it is a financial ratio that measures a company’s profitability in relation to its outstanding shares of stock.
7. DPO: This stands for “days payables outstanding,” and it is a financial ratio that measures how long it takes a company to pay its bills.
8. DSO: This stands for “days sales outstanding,” and it is a financial ratio that measures how long it takes a company to collect payment from its customers.
9. COGS: This stands for “cost of goods sold,” and it refers to the direct costs associated with producing and selling a product or service.
10. R&D: This stands for “research and development,” and it refers to the costs a company incurs in developing new products or improving existing ones.