How to Analyze a Financial Report
- 1). Read through the first couple of pages of the financial report. There will be a letter from the company's CEO, who will address any major financial issues for the company and may give them a positive spin. The CEO may remind readers of the company's mission statement, its goals and its dedication to customers, while stating everything positive about the company and only mentioning the negatives.
- 2). Read through the sections after the CEO letter that address the customers. This information can include promoting new services and products and reminding customers that the company is always working with them in mind.
- 3). Browse through the charts and graphs that highlight the financial status of the company. Many of the charts are meant for investors and shareholders, not the customers who want to learn more about the company. To figure out the company's financial report, look for the terms "assets" and "liabilities," "net worth," "short-term and long-term assets" and "income statements."
- 4). Look under the Assets section to determine what the business owns. Under the Liabilities section, you can find what the company owes. Subtract the total liabilities from the total assets to determine whether the company is in a positive or negative state. If the business liabilities are more than the assets, the company owes more than it owns. This result is also called the net worth.
- 5). Analyze the company's long-term and short-term assets. Long-term assets are less likely to fluctuate than short-term assets. Determine how much the business earns from the short- and long-term assets.
- 6). Add up all of the assets the business owns and divide the figure by the total liabilities amount. This will reveal the financial status of the company in terms of profits. The amount should be twice as large as the liability sum for the company to be considered in good financial status.
- 7). Read through the income statements to determine how the company is spending its money. This will reveal where the company's capital is going and for what purposes. For those invested in the company, the income statements will make them aware of the company's spending details.
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