Learn what financial statements are and how to interpret them to make better business decisions and improve financial health.
As a business owner or executive, understanding your financial statements is like having a roadmap for your company’s success. These documents tell you where your money is coming from, where it’s going, and how healthy your business really is. Let’s break down what you need to know.
The Three Main Financial Statements
Every business should regularly review three key financial statements:
- Balance Sheet – Shows what your company owns (assets) and owes (liabilities) at a specific point in time
- Income Statement – Reveals your profits and losses over a period
- Cash Flow Statement – Tracks how cash moves in and out of your business
Together, these financial statements give you a complete picture of your company’s financial position.
How to Read a Balance Sheet
The balance sheet follows a simple equation: Assets = Liabilities + Equity. Here’s what to look for:
- Current assets (cash, inventory) vs. long-term assets (property, equipment)
- Current liabilities (bills due soon) vs. long-term debt
- Owner’s equity (what’s left after paying all debts)
A strong balance sheet typically shows more assets than liabilities and enough current assets to cover short-term obligations.
Understanding Your Income Statement
Also called a profit and loss statement, this shows your:
- Revenue (total sales)
- Cost of goods sold
- Operating expenses
- Net profit or loss
Look for trends over time – is revenue growing? Are expenses increasing faster than sales? These patterns help you make smart business decisions.
Why Cash Flow Matters Most
Many profitable businesses fail because of cash flow problems. The cash flow statement has three sections:
- Operating activities (day-to-day business)
- Investing activities (equipment, property)
- Financing activities (loans, investments)
Positive cash flow means you have money to pay bills, invest, and grow. Negative cash flow is a warning sign that needs attention.
Get Expert Help With Your Financial Statements
At IDM Professional Accounting, we don’t just prepare financial statements – we help you understand what they mean for your business. Our team can identify opportunities, spot potential problems, and help you make data-driven decisions.
Ready to take control of your business finances? Contact IDM today to book a consultation.
