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Financial statements explained for the corporate lady

Even if you are not in accounting or the financial department, it is your business to know and understand the key numbers and ratios that indicate whether you are performing well or not. You love how overview gives you a sense of calm and control right? Well the financial statements are essentially financial overviews.

Here are 4 more things to know about financial statements that will get you started;

#1 Don’t be afraid of the numbers


To help you start, here are some great words of advice from my favourite professor of Financial Engineering; “Don’t be afraid of the numbers.”
The first thing to do when you are getting into the numbers is to decide to be curious and interested in them. That approach will give you the energy and enthusiasm to dive right in.


# 2 Get the different snap shots

Financial statements are usually composed of 3 key elements. You need all of them to get a good picture of how the business is doing because they are all snapshots of different periods of time. Like having different exposure times on your camera.

Balance Sheet:

Your balance sheet will show you the financial health of the organization on any given day. It also tells you what your business is worth at that moment. Just check the date of the Balance sheet and you’ll know from when snap shot is. Usually at the end of the (fiscal) year.

Income Statement or Profit and Loss (P&L) Statement:

This statement shows the Revenues and Expenses over a period of (accounting) time. Usually 2-3 years are provided to compare the numbers to each other. This is so you can compare if the company is doing better or worse in that area. Remember though, sometimes it’s not that simple, and ratios or calculations need to be done to compare the numbers effectively.

Cash Flow Statement:

Your statement of cash flows shows how changes in balance sheet accounts and income affect your cash and cash equivalents. It breaks down the analysis into:
  1. Operating Activities
  2. Investing Activities
  3. Financing Activities

      The cash flow combines the balance sheet and the income statement into one good overview. With accounting, sometimes net income isn’t completely aligned with cash flow.

      The cash flow statement resolves the income statement with the balance sheet in three major business activity areas, mentioned. These activities include operating, investing and financing activities. Operating activities include cash flows made from regular business operations. Investing activities include cash flows from the acquisition and disposition of assets, such as real estate and equipment. Financing activities include cash flows from debt and equity investment capital.


      # 3 Understand at the story behind the numbers

      A lot of people think that the numbers are boring, but that is a stigma that is completely untrue. Numbers on the neat little financial statements that the accounting team prepares for you, are always telling a story.

      When you learn to read them, compare them and calculate a few ratios, they tell you about the business and how it is doing as well as what it is doing.

      It helps to understand the business as well, because if you know what’s going on in the departments and activities of the company, these will help you understand the story that the numbers tell.

      #4 Ask the financial department

      Your financial department is probably very busy, but if you set aside the time to sit with someone, you can even ask them what numbers affect your area of the business, how to read and understand them as well as what you can do to influence them for better results.

      Getting into the numbers is useful and understanding them is powerful. It all starts by just being bold and asking.

      So the goal is…

      The goal is to understand what the money is doing so that you can understand what is going on with the business – if it’s performing well overall and in the parts that you are responsible for, and where you can pay attention to, to help it do even better.

      More on Money

      Coming up, we will deep dive into financial ratios and how being able to calculate them and influence them will help you do better business.


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