Financial Statements

Financial Statements

• What are they?

  Reports that show a company's financial health.

  The 4 statements

  Balance Sheet = Financial position.
  Example: Assets, liabilities, equity.

  Income Statement = Profit over time.
  Example: Revenue, expenses, net income.

  Cash Flow Statement = Cash movement.
  Example: Cash in and cash out.

  Statement of Shareholders' Equity = Changes in equity.
  Example: Profit, dividends, new shares.

  Accounting rules

  GAAP = U.S. accounting rules.
  Example: Used by U.S. companies.

  IFRS = International accounting rules.
  Example: Used in many countries.

Balance Sheet

What is it?

Shows what a company owns, owes, and the owners' value at one point in time.

Key terms

Assets = What the company owns.
Example: Cash, buildings.

Current Assets = Assets used within one year.
Example: Cash, inventory.

Non-current Assets = Assets used for more than one year.
Example: Buildings, machines.

Liabilities = What the company owes.
Example: Loans, unpaid bills.

Current Liabilities = Debts due within one year.
Example: Accounts payable.

Non-current Liabilities = Debts due after one year.
Example: Long-term loan.

Equity = What belongs to the owners.
Example: Assets = $100, Liabilities = $60 → Equity = $40.

Common Stock = Regular shares.
Example: You buy Apple common stock.

Preferred Stock = Shares with priority for dividends.
Example: Preferred shareholders get paid first.

Retained Earnings = Profit kept in the company.
Example: The company keeps the profit to grow.

Treasury Stock = Shares bought back by the company.
Example: The company buys back its own shares.

Formula

Assets = Liabilities + Equity

Example

Assets = $1M
Liabilities = $600k
Equity = $400k

Income Statement

What is it?

Shows revenue, expenses, and profit over a period.

Key terms

Revenue = Money from sales.
Example: Apple sells iPhones.

Cost of Goods Sold (COGS) = Cost to produce goods.
Example: Cost to make the iPhones.

Gross Profit = Revenue − COGS.
Example: Revenue = $100, COGS = $40 → Gross Profit = $60.

Operating Expenses = Costs to run the business.
Example: Salaries, rent.

Net Income = Final profit after all expenses and taxes.
Example: The company earns $20 profit.

Comprehensive Income = Net income + other gains and losses.
Example: Profit + foreign currency gains.

Cash Flow Statement

What is it?

Shows where cash comes from and where it goes.

Key terms

Operating Activities = Cash from daily business.
Example: Selling products.

Investing Activities = Cash used for or earned from investments.
Example: Buying a new machine.

Financing Activities = Cash from loans, issuing shares, or paying debt.
Example: Borrowing money from a bank.

Example

• Sell products → Operating

• Buy equipment → Investing

• Borrow money → Financing

Statement of Shareholders' Equity

What is it?

Shows how shareholders' equity changes over time.

Key terms

Net Income = Profit earned.
Example: The company earns $10M.

Dividends = Money paid to shareholders.
Example: The company pays $2M.

New Shares Issued = New shares sold to investors.
Example: The company raises new capital.

Share Buybacks (Treasury Stock) = The company buys back its own shares.
Example: The company repurchases 1 million shares.

Example

Profit = $10M
Dividends = $2M
Retained = $8M
→ Equity increases.