Reading Financial Statements

Read top to bottom: revenue minus costs at each step, ending in net income — the company's profit over a period.

The total money a company earns from selling its products or services before any costs are subtracted.

The direct costs of producing or buying the goods and services a company actually sold during the period.

What is left from revenue after subtracting the direct cost of the goods or services sold.

The profit a company makes from its core business operations, before interest and taxes.

Profit from a company's core operations before financing costs and income tax are deducted.

Earnings before interest, taxes, depreciation, and amortization — a rough proxy for operating cash generation.

Non-cash charges that spread the cost of long-lived assets over the years they are used.

The overhead of running and selling — salaries, marketing, rent, and admin costs not tied to making the product.

Spending to create new products and technology — usually expensed now, with payoffs hoped for later.

A company's profit after all expenses except income tax — the base that income tax is applied to.

The share of a company's pre-tax profit it actually pays in income tax, shown as a percentage.

The company's bottom-line profit after all expenses, interest, and taxes have been subtracted from revenue.

A snapshot of what a company owns and owes on one day: assets = liabilities + equity, always in balance.

Everything a company owns or controls that has economic value — cash, inventory, equipment, investments, and more.

Cash on hand plus highly liquid short-term investments that can be turned into cash almost immediately.

Money customers owe a company for goods or services already delivered but not yet paid for.

An intangible asset recorded when a company pays more to acquire another business than the fair value of its identifiable net assets.

Non-physical assets with economic value — patents, trademarks, software, licenses, and customer lists.

The sum of a company's interest-bearing borrowings — short-term and long-term loans, bonds, and lease obligations.

Cash collected for goods or services not yet delivered — a liability, not income, until earned.

The owners' residual stake in a company — what would be left for shareholders if all assets were sold and all debts paid.

Cumulative profits a company has kept and reinvested rather than paid out as dividends.

The share of a partly owned subsidiary's equity that belongs to outside shareholders, not the parent.

Shares a company has bought back and holds itself — a contra-equity account that reduces shareholders' equity.

Shareholders' equity minus goodwill and other intangibles — what's left if you ignore non-physical assets.

Current assets minus current liabilities — the short-term cash cushion that funds day-to-day operations.

Tracks actual cash in and out across three sections — operating, investing, financing — to show if profit is real cash.

The cash a company actually generates from its core day-to-day business, before financing and investing activities.

The cash a company spends to buy, build, or upgrade long-lived physical and intangible assets like property, plant, and equipment.

Pay given to employees in the form of stock or options rather than cash, recorded as an expense even though no cash leaves the company.

The short-term money a company has tied up in running its business, measured as current assets minus current liabilities.

The share of a company's profit that turns into actual free cash flow, showing how cash-efficient its earnings are.