What does a Financial Statement Tell an Investor

Financial statement tells an investor lots of information which affects his decision of investment. Except knowing exact value of business, financial statement provides the knowledge of current financial position, current performance and amount of cash from operation.


All these information are enough to take best investment decision. Investor should also aware these information because all financial statement's information are silent. It is just picture and great artist can find the great art in it. Like this, when investor will compare these financial statement information with other companies.

Even you are not expert in financial statement analysis but you should do some analysis by knowing following 4 points which is told by financial statements.


1. Financial Statements Tell Financial Position, Earning Position and Cash Flow Position

Understand the financial position if you are a simple investor. In balance sheet, if company has taken very low amount of loan. All other fund is of share capital. Company has invested most of  his share capital in fixed assets. And all current assets are more than current liabilities. Then, this is solid balance sheet. Financial position is strong. Investor should invest his money in such company.

Investor should also understand the earning position. Take the net profit from profit and loss account. Take the % of net profit ratio, by dividing net profit with net sale and multiplying 100. If it is good margin. Earning position is good. Investor should also calculate ROI.

In financial statement, cash flow statement also includes. Understand it. It will tell the cash flow position in operation, in investing and in financing. If there is more cash inflow in operation than cash outflow in operation, it is good cash flow position of our business operation.


2. Financial Statements Tell to Go to Analysis 

For reaching to the result, financial statement tell to go to analysis. Ratios and trend helps to analyze. When financial statements show the current assets and current liabilities. It means, it is telling to us. Not to just see it. Calculate current ratio, quick ratio and working capital ratio for reaching to the result or decision.

3. Financial Statements Tell You to Learn its each item 

Financial statements tell you to learn its each item. Before learning and understanding its each item and its importance for investment decision, to invest the money is just gambling. For example, you have to buy Rs. 7,00,000  the shares of ABC company. You have no understanding of any item of financial statement. You just went to CA who is specialized in it. After diagnosis  the past financial statements of ABC company, he reached on the decision, company has totally damaged. Investing money in this company is just loss of your capital. He reached on the decision because he studied each item of financial statement in his CA theory and practical classes. So, if you did not take the help of CA or CPA, try to learn each items and its analysis with the help of google.

4. Financial Statements Tell the data for Advance Investment Analysis

Past financial statements helps to do advance investment analysis. Whether this analysis for calculating intrinsic value or finding asset bubbles. All type of fundamental analysis are based on past financial statement reports.