Without getting into too much unnecessary detail here we just wanted to briefly go over three critical pieces of information that provide a picture of the health of every company, and thus their stock as well. All companies that issue shares to the public must report their financial health to the Securities and Exchange Commission (SEC) every 3 months as well as an in-depth annual report so investors have a clear picture of how the company is performing. You will encounter these three statements and will likely read the professional analysis of them that breaks down how a company is performing.
This statement shows over the three month period (or annual period if provided in the annual report) how much revenue the company received, what their costs were, and how much money was left as profit for shareholders. Comparing this report to previous statements could show whether sales are increasing attractively, expenses are growing too fast, and how much money is left as earnings to shareholders over time.
The balance sheet takes a “snapshot” of the company at the end of the three month period and shows what the company owns (assets), what they owe (liabilities), and how much the company is worth (shareholders equity … also calculated as assets minus liabilities). A company with low levels of cash and high levels of debt coming due (in the form of their bonds maturing) could lead them into bankruptcy if they are unable to find money to pay these obligations.
Cash Flow Statement:
“Cash is King” is a frequently used nerdy term used in financial jibber-jabber, but it is important that a company has cash available to pay off their debt and invest in new projects. This statement shows the sources (inflows) and uses (outflows) of cash over the three-month or annual period. If a company is not generating cash in the normal course of their business then they might have to borrow more money to pay bondholders or invest in new projects.