Financial Statements Analysis: The Language of Business in Action

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If money talks, then financial statements are the grammar and punctuation that make sure the conversation makes sense. They are the standardized reports that allow investors, managers, and even the curious neighbor down the street to understand how a business is performing.

What Are Financial Statements?

Financial statements are formal records summarizing the financial activities and position of a business, person, or entity. Under Generally Accepted Accounting Principles (GAAP) in Canada and the U.S., and IFRS internationally, they provide a consistent and comparable view of financial performance.

The three main financial statements are:

1. Balance Sheet — A snapshot of what a company owns and owes at a point in time.
2. Income Statement — A report on revenues, expenses, and profit over a period.
3. Cash Flow Statement — A summary of actual cash inflows and outflows.

In short, the income statement is the movie, showing the company’s profitability; the balance sheet is the photograph, capturing what the company owns and owes as a result; and the cash flow statement is the reality check, explaining how those results affect actual cash.