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What are company financial statements?
Financial statements are documents designed to give investors a snapshot of how a business is performing over a particular period. Financial statements answer some important questions investors should ask before buying a stock, such as:
Financial statements answer these questions:
How does the business make its money?Have the business's revenue and earnings grown or shrunk?How much does the business own?How much does the business owe?Is there more money coming in or going out?
Income statement
A company's income statement tells you how much money a company brought in and how much of a profit (hopefully) it earned from that revenue.- The “top-line” number: The first major number on the income statement is a company's net sales or revenues, also known as the top-line number. In many cases a company's income statement will break down different sources of income. For example, Apple's (AAPL -0.7%) income statement breaks its revenue into product sales and service revenue.
- Net income (earnings): From there, the company's cost of sales is subtracted to produce its gross income. Its operating costs (like research and development) are subtracted to calculate its operating income. Then income tax expenses are subtracted, and the result is the company's net income, also known as its "earnings." Net income is often expressed both as one large number and by share (the latter being earnings per share, or EPS).
The general takeaway
An income statement starts with the company's sales and shows step by step how it turns them into profit.
Balance sheet
A balance sheet gives you a snapshot of a company's financial condition at a given time (typically the end of a quarter). And as with the income statement, the data is typically presented as a comparison between the current period and the same time a year prior.There are three sections on a balance sheet:- Assets: What the company owns. This is further broken down into current and noncurrent assets. Current assets include liquid assets and assets that can be expected to become liquid within a year. Examples include cash, short-term Treasuries, accounts receivable, and inventory. Noncurrent assets include long-term investments, real estate, and equipment used in manufacturing, just to name a few.
- Liabilities: What the company owes. These are also divided into current and noncurrent. Current liabilities include payments a company will have to make within a year, such as accounts payable and short-term debt. Noncurrent liabilities include things like long-term debts.
- Shareholder's equity: Think of shareholder's equity as what the company would have if it shut down, sold all of its assets, and paid all of its debts. Shareholder’s equity is the difference between assets and liabilities and is the company's net worth.
Cash flow statement
A company's cash flow statement shows the money flowing into and out of the business. This is broken down into a few categories:- Operating activities: This includes the net income from the company's business, stock-based compensation, receivables collected, accounts payable that were paid, and other business-related items.
- Investing activities: If a business buys or sells stocks or bonds, this activity is included in this part of the cash flow statement. The same is true if the business buys or sells real estate or equipment.
- Financing activities: If a company issues new common stock, it is included in this part of the cash flow statement. Dividend payments are a common outflow in this section, as are stock buybacks. And if a company repays debt, that will appear as a line item here.
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Where to find company financial statements
You can get a company's financial statements straight from the source—the company itself. Simply go to the company's investor relations (IR) page and look for its most recent quarterly earnings report, which is usually under a "news," "press releases," or "financials" tab at the top of the page. Many companies keep their latest results as a focal point on their main IR page. For example, on Apple's investor relations page, the first item listed is a press release with the company's latest results. Directly on the press release is a link to the, which contains the three main documents discussed above.There are certainly other ways to find a company's financial statements. For example, you can go directly to the and look up the company's latest quarterly report. Additionally, your brokerage might offer a view of the financial statements as part of its stock quotes, which is an easy way to find them.The bottom line is that for all publicly traded companies listed on major U.S. exchanges, financial statements are full of information, updated quarterly, and readily available to help investors like you make informed decisions.Financial Statement FAQs
Which company financial statements are the most important?
There are three main financial statements investors should be aware of: the income statement, the balance sheet, and the cash flow statement.
Where can I find company financial statements?
You can get a company's financial statements straight from the source—the company itself. Simply go to the company's investor relations (IR) page and look for its most recent quarterly earnings report, which is usually under a "news," "press releases," or "financials" tab at the top of the page. Many companies keep their latest results as a focal point on their main IR page.
Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
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