Your quick Guide to Financial Statements

Understanding Financial Statements: The Story Behind the Numbers

Financial statements are the pulse check of a business. As Marcus puts it, “Know your numbers.” These reports break down gross profit, net profit, cash flow, and liquidity, painting a clear picture of financial health. When analyzed together, they provide a complete overview of how well a business is performing.

The Key Financial Statements

1. Income Statement (Profit & Loss Statement)

This is the ultimate tracker of money flowing in and out. It outlines revenue, expenses, and losses over a specific period, showing whether a business is making or losing money.

2. Balance Sheet

A snapshot of what a business owns versus what it owes. Assets—like cash, inventory, and property—are the positives. Liabilities—such as debts, taxes, and accounts payable—are the negatives. The balance sheet also includes equity, which represents what would be left if all assets were sold and debts paid.

3. Statement of Cash Flows

This tracks cash movement and working capital, revealing how well a business can meet financial obligations while covering day-to-day operations. It highlights whether a company has enough liquidity to sustain itself.

4. Other Financial Statements

• Statement of Owner’s Equity – Shows retained earnings (profits reinvested into the business instead of being paid out).

• Statement of Functional Expenses (for nonprofits) – Breaks down spending into fundraising, program costs, and management expenses.

  
  

When Are Financial Statements Needed?

Beyond internal tracking, financial statements are essential for investors, lenders, and potential buyers. Public companies in the U.S. must submit key financial reports under GAAP (Generally Accepted Accounting Principles) to maintain transparency. This ensures stock market investors can make informed decisions.

How to Read Financial Statements

Each financial statement tells a different part of the story:

✅ Income Statement – Tracks revenue, cost of goods sold, and net profit.

✅ Balance Sheet – Lists assets, liabilities, and equity.

✅ Statement of Cash Flows – Breaks down cash movement across operations, financing, and investments.

Together, these reports reveal how a business is run—whether it’s thriving or just scraping by.

Closing Questions:

🔹 What story do your financial statements tell?🔹 How are you using them to drive better decisions?