3JM Company Inc.

Published Articles by David Balovich

Published in: Creditworthy News
Date: 10/8/98

The next few columns will deal with the subject of analyzing financial statements.

The past 15 years I have taught financial statement analysis without the use of a calculator, SIC industry averages or Key Business Ratios. It is my opinion and I emphasize the word opinion that analyzing a financial statement is nothing more then understanding what the numbers represent.

What is a financial statement ?

The financial statement is a report created for management so that they can determine the following:

The amount and nature of what they own, assets.
The amount and nature of what they owe, liabilities.
How much they have invested in the business, capital.
How much business they have created, revenue.
How much they have spent, expenses.
How well they have managed expenses, profit vs loss.

Simply put, a financial statement is management's report card. It is created by and for management and what you receive is what they want you to see, nothing more.

The Financial Statement

A financial statement is made up of 5 components:

The Opinion Letter
The Balance Sheet
The Income Statement
The Statement of Cash Flows
The Notes

If you have any less then the above you do not have a financial statement but rather a component of a financial statement.

In our next column we will discuss the opinion letter and the notes.

I wish you well.

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