how to read financial statements?

Reading financial statements involves becoming familiar with the information presented in each statement and understanding how it is presented. This typically involves understanding the following types of financial statements:

The balance sheet: This statement provides a snapshot of a company's financial position at a specific point in time, including information on assets, liabilities, and equity.


The income statement: This statement shows a company's revenue and expenses over a specific period of time, such as a quarter or a year. It shows a company's net income or loss for that period.


The cash flow statement: This statement shows a company's cash inflows and outflows over a specific period of time, and it can provide insight into a company's liquidity and ability to pay its bills.


The statement of retained earnings: This statement shows the changes in a company's retained earnings over a specific period of time.

It is important to read the statement together and get a sense of how the different components of the company's financial position, performance, and cash flows are interconnected. Furthermore, It would be wise to read them in comparison with industry peers and prior periods of the company itself.

To gain more understanding, it is also recommended to consult and use financial analysis tools such as ratio analysis and trend analysis to make sense of the numbers.