Understanding financial statements of a company

Understanding finance is important not only for finance students but also for investors, engineers, doctors and every group of the society. If an investor doesn’t understand what is a Balance Sheet and if he can’t make out the performance of a firm by looking at the Income statement he would be doing a gambling. 

This post and the future posts in this category are aimed at educating beginners in account statements and statistics in finance.
Financial statements provide us key information to know the performance of a firm over a period of time and the healthiness of a firm at any given point of time. There are two important financial statements released quarterly and annually by listed companies to general public.    1. Balance sheet
   2. Income statement or Profit and Loss Account

Balance sheet is a list of assets and liabilities of a company which gives us a picture of financial position of a company at a specific point of time.

Income statement is basically a cash flow statement which gives us information about the performance of a firm over a given period of time.

We will discuss about these two important financial statements in other posts.

Who are the users of these statements and in what way they are useful?

Generally investors, lenders, employees, management, suppliers and Government are interested in knowing the information provided in the financial statements.

Investors – Get information to assess risks in the investments. Based on the information they take decisions to Buy, Hold or Sell. If the management is not doing well they think about replacing the Management?

Lenders – They are interested to know the healthiness of the company so that they will get an idea on whether they get the interest and capital back on the money the have lent.

It’s useful to new creditors to lend money.

Suppliers – They would know if their dues would get paid in time.

Customers – They would like to deal with financially stable vendors in long term engagements.

Government – Interested in allocation of resources, taxation policies, statistical interests

The management – They have access to additional information as well, with which, they try to analyze the performance period after period to bring the best into practice.

Employees – Employees are interested to stay with a financially stable company.

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January 31, 2009 | Filed Under Fundamental Analysis 

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