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Show me the numbers! Financial statement basics

Financial statement basics help reveal the treasure in the chest

Financial statements hold a treasure trove of investment information. Understanding financial statement basics lets us unlock the rich treasure chest hidden in the numbers!

The keys to a treasure trove of investing information is understanding financial statement basics. With that basic skill, investors can ask companies to, “show me the numbers!”

Financial statements are in-depth reports filled with revealing information on all financial aspects of a company. That deep treasure trove of answers revealed by financial statements let us deeply understand a company and make well founded investment decisions.

A New Investment Tool!

This post begins the White Top View Series, Basic Numbers. Together, these related posts can help introduce novice investors to financial statements. This is a very basic introduction to financial statements.

Understanding financial statements gives you another powerful and useful investment research tool! With a little time and effort on your part, this series can help you get comfortable looking at, reading and understanding financial statements.

Links to all parts of the White Top View Series, Basic Numbers are at the end of this post.

The Basic Numbers For Investors

Anyone that reads product labels for nutrition and content information, or follows a recipe, or can find the standing of a favorite sports team, can easily learn about reading financial statements.

No rocket science or brain surgery here, we just need to know how to read the numbers. Then we can pick out the numbers that count.

Understanding those numbers gives us a better understanding of the companies that we hope will bring us to financial security and retirement independence. Or that simply grow our wealth!

Three Investment Questions

We need to know, is our treasure growing or shrinking? Are we more secure or more at risk? What do the numbers say? These three question summarize our interest in investing! The financial statements give us the answers. Later White Top View posts can help you learn what to do about what you learn from the financial statements.

Financial Statement Key Components

  1. Balance Sheet

  2. Income Statement

  3. Cash Flow

In addition to these three financial statements, there are others and much more useful supplemental information available in a set of financial statements. To begin we stay with discussing these basic statements that show us the money. These reports give critical information: where the money comes from,  where is it now and where it goes.

Investors Gain From Professional Accounting

Accounting professionals produce financial statements. It takes years of study to learn, understand and practice professional accounting. The field is broad and deep. The work of accountants involves considerably more than just producing financial statements. They make careers of producing financial reports and far more.

You can delve very deeply into the numbers to extract considerably more information than our quick basic overview. My purpose here is to get you comfortable with looking at the numbers. When comfortable, you will understand the value of these documents and how they help you make decisions that can grow your wealth.

Accounting Standards Let Investors Compare Companies

Getting everybody on the same page with the same understanding is one ongoing challenge faced by accountants. As a profession they agree on standards. That means the numbers produced by one accountant are comparable to those produced by all others.

The standards apply nationally. Sensibly, the several accounting professional organizations are working towards universal standards. We are not there yet, but the process is well on the way.

Knowing which standards apply becomes important when considering investments outside your home country. You will want to investigate and know the differences before putting your money in. You also need to know if the standards are the same for companies you wish to compare. However that is well beyond this basic discussion.

Investors Must Get Down To The Numbers

We begin by looking at the numbers. Pick any company in your portfolio or any publicly listed company that interests you. Search the company website for the latest quarterly report. That report will include the current financial statements. Open the financial statements and use them as an example to look at while we take a quick tour that touches on the highlights.

Beginning in the next post in this White Top View blog series, we take a walk through each financial statement.

Next in Part 2: Look the balance sheet numbers balance! we learn what balance means!

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Your comments and questions are welcome here. Or email me at WhiteTop@WhiteTopInvestor.com. Bite-sized White Top View posts are lessons to help non-investors on the way to becoming knowledgeable, comfortable, confident investors. By demystifying investing and giving you a better understanding of markets, one small step at a time, you can become the master of your financial security and independence. The White Top Views email list will never be shared or sold.

Have a prosperous day!

Bryan

White Top Investor
whitetop@WhiteTopInvestor.com
www.WhiteTopInvestor.com
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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact info@WhiteTopInvestor.com.

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Links to the White Top View Series, Basic Numbers

Part 1: Show me the numbers! Financial statement basics

Part 2: Look the balance sheet numbers balance!

Part 3: Getting to the bottom line – on financial statements

Part 4: Where did the money go? 1st look at cash flow

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