What is a Financial Statement?

The Balance Sheet is divided into 3 sections:

• Assets

• Liabilities

• Capitalization or Net Worth (assets less liabilities)

The Income Statement is divided into:

• Income (sales and revenue are the same thing)

• Cost of goods sold (producing inventory)

• Gross profit (earnings before expenses)

• Expenses (overhead)

• Reserve for taxes

• Net profit or earnings after all expenses

The Cash Flow Statement is divided into:

• Adjustments to income

• Changes in assets and liabilities

• Cash flow from non-operating activities

• Financing activities such as sale of stock or bonds

• Net change in cash and cash equivalents

When you look at a company’s statements, sales and profits going up is good, going down is bad. Cash flow going up is good, going down is bad.

Where does an investor find these financial statements? One way, is calling the company and ask for the investor-relations manager. They will be happy to send you an annual report.

You can view the latest quarterlies at many financial websites. Yahoo’s http://finance.yahoo.com/ is a good place to look - go to “stock research / financials”, or try the government’s SEC site at www.freeedgar.com.

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