3: Financial Statements and Analysis
- Page ID
- 150113
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Financial statements can be thought of as a company’s report card, providing a periodic overview of its financial health and performance. These reports, issued quarterly (every three months) and annually, summarize the company’s historical performance, what it owns (assets), and how those assets are financed (liabilities and stockholders’ equity).
For managers, investors, lenders, and other stakeholders, financial statements serve as the primary source of information for evaluating a company’s financial position, operating performance, and cash-generating ability. Rather than focusing on day-to-day transactions, financial statements present a structured summary that supports comparison, accountability, and decision-making.
Learning Outcomes
After completing this chapter, you should be able to:
- Explain the purpose and structure of the income statement, balance sheet, and statement of cash flows.
- Analyze financial statement information to assess financial performance and position.
- Use basic financial ratios to support business and investment decisions.
In the United States, public companies are required to file their financial statements with the Securities and Exchange Commission (SEC). Quarterly reports are filed using Form 10-Q, and annual reports are filed using Form 10-K. These filings are also made available to shareholders and the general public. While private companies also prepare financial statements, they are not typically required to disclose them publicly.
Financial statements are critical tools for investors, financial analysts, lenders, and managers. Investors use them to evaluate profitability and risk, lenders assess creditworthiness, and managers rely on them to guide operational, financing, and investment decisions.
For those interested, these reports can be accessed for free through the SEC’s EDGAR database. Financial information is also available through third-party platforms such as Yahoo Finance and Morningstar, which repackage company filings in more accessible formats. In the sections that follow, we examine the three core financial statements in detail and explore how they work together.