In India, every company which is listed on stock exchanges has to release every year broadly three types of financial statements. These financial statements tell us about the information about the company. These include all the details from assets to liabilities and complete details about the revenues Profit and losses.
These documents are to be mandatorily released by all the publicly listed companies as mandated by stock exchanges. These serve as a tool for the shareholders to understand the companies operations, its growth and also future prospects.
The following are the three types of financial statements released by the Publicly listed companies.
Cash flow statement
These financial statements released by the company are the one on which most of the analysts give their recommendations about stocks. These reports are so important that they make use understand the true picture of the company and hence invest in profitable and high growth companies.
The balance sheet consists of the details about the assets, liabilities and equity of the company. Important terms to look out for in the balance sheet are current assets, Non-current assets, Property, plant and equity, Long term liabilities, common stock, preferred stock retained earnings.
Each and every term listed about is carefully analysed and compared with the previous financial report and see if there is any improvement in that particular one. and also see if there is any underperformance and the possibility of future loses to the business based on the broader economic situation.
The data presented in the balance sheet is at the end of the period for which the financial report corresponds to. These values keep on changing and the most important thing as highlighted earlier to observe is to look for if there is any improvement and or deterioration. Based on these you can predict the possibility of future growth of the company.
Income statement as the term itself tells that it gives details about the income of the particular company. But this is a simple explanation, but the document included a lot of details like Net sales, Expenses of the company and others.
The important terms to look out for in an Income statement are Net sales in that period, Operating cost, Depreciation and amortization, Interest cost, Taxes, Net income, dividends during that period and others.
The objective of the Income statement is to give a clear picture of the income of the company by describing the net sales during the period and the next expenses incurred by the company during the period. This ensures transparency in the companies expenditure and everything will be known to the shareholders right from the source of revenues and the expenditure on each and everything the company is spending.
The Income statement should give out Earning of the company before Interest, Tax, Depreciation and amortization which is popularly called as EBITDA, Earnings Before Interest and tax popularly called as EBIT and it will be arriving after deducting depreciation and amortization from EBITDA, Net income before paying dividends, Net Income(NI). These are the four important things analysts highlight when they are analysing about any company.
Cash Flow statements
Cash flow statement included the details about the cash generation from different activities of the company. The important terms to look out for in cash flow statements are Operation Activities, Investment activities and Financing activities of the company.
This statement gives the real picture about what is the actual source of cash for the company and indicates all different activities from where the company is generating the cash. These activities are in broad categories as Operating activities, Investment activities and financing activities.
Footnotes to Financial statements
Footnotes is another important thing to know about to understand the companies financial statements. Many times when you look and read the financial statements if might feel difficult to understand many terms and calculations. Footnotes help us in such situation as they explain the details about how the financial statements are prepared and what is the method that is used in the different calculation and also about the standard accounting principles which are followed while preparing the financial statements.