Easy Tips for Reading Financials: Introduction

financials-screenshotWhen you are looking to invest, reading financials of a company gives you the blueprint. They can tell you what you need to know to make a solid investment decision.

However, it can be tricky to figure these reports out. Here is a guide to help you as you begin to look over financial statements.

The Basics

To begin with, you need to know some basic information. The financial reports you will be looking at include the annual report, financial statements, and the 10K.

The annual report usually includes a letter from the CEO that goes over many aspects of the business, including competition, industry outlook, and explanations of the financial figures found in the financial statements. The 10K is a required form that must be filed, and it explains the finances of the company more in-depth than the annual report. It contains a lot of information that is helpful to an investor.


You’ll have four financial documents to look at when you’re reading financials of a company. These financial statements are the balance sheet, statement of shareholders’ equity, cash flow statement, and income statement.

  • The balance sheet will outline the companies assets and debts for a specific period.
  • The statement of shareholders’ equity shows the shareholders’ interest in the company.
  • The cash flow statement shows money paid out and received by the company.
  • The income statement shows the flow of income in and out of the company.

Reviewing and Reading Financials

As you begin reviewing your documentation, keep in mind that you don’t need a master’s degree, like the one from MVU Online, to get through these. As you gain more experience, you’ll find the process to be very enlightening.

i. The Annual Report

You probably will want to start with the annual report. This will be the easiest to read. Its language won’t be as formal or complex as what you’ll find in the 10K. While it doesn’t offer as much information as the 10K or financial statements, it can still give you insight into how the company is doing, including how the CEO is running the company.

ii. The 10K Filing

Once you have read the annual report and have a good overview, you can read over the 10K. This contains a lot of information, so be sure to read it all. Make notes of anything that stands out to you so you can check into these things later.

Also, pay attention to any lawsuits that the business may be currently involved in and the obstacles or issues the company is dealing with or expects to deal with. All of these things can help you to develop a good idea of what the future looks like for the company.

iii. Financial Statementsreading financials

Finally, you want to review each of the financial statements. These are really where you get the best look at the financial state of the company. As explained by NEC , they are the tenets of financial reporting.

Read through them carefully, highlighting anything that concerns you or makes you happy. Make notes if you are unsure or questioning something. You can often find explanations in the annual report or 10K for anything unusual you may find.

After you have finished reading financials for your target, you should be ready to make a decision about investing. Remember that you are looking for a solid company with good growth potential. By reading the reports, you are best able to make an informed decision.