How to read and Understand Financial Statements

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How to read and Understand Financial Statements

Some Basic Questions on How to read and Understand Financial Statements

  • Why Financial Statements are Prepared?
  • Who are Various Stakeholders of Financial Statements
  • What are the Stakes of Various Stakeholders?
  • Do Financial Statements Really Hold Some Value?
  • Are Financial Statements User Friendly?
  • Who are Shareholders? Do They Really Understand Financial Statements
  • Is Financial Reporting Standards Really Making Financial Statements Easy for Understanding & Use for Shareholders?
  • Can a Common Shareholders Really Analyze the Financial Information Contained in Financial Statements?
  • How Financial Statements Can be Made User Friendly?
  • Are Financial Managers Really Interested in Preparing Financial Statements in User Friendly Manner?

Financial Information

  • Financial statements – components
  • Statement of financial position
  • A financial statement of the business as at a specific point in time
  • Reports at a specific point in time where the money invested in the business came from and how it is currently invested
  • Financial statements –Statement of Position
  • Financial statements – Income Statement


  • Revenues and gains that enhance the company’s assets from the operations of the company
  • Financial statements – Income Statement


  • Outflows or decreases in economic benefits
  • Financial statements – Income Statement
  • Income statement

Financial Statements & Shareholders

  • Is Movement in Share Prices are Reflection of Financial Position of Companies?
  • Do Shareholder really get benefited with Last Year Financial Information Reported in Financial Statements?
  • What is the level of Trust of a Common Shareholder on Reported Financial Information in Financial Statements?
  • Can Reported Information in Financial Statements be Effectively Used for Future Financial Decision making?
  • Who are the real beneficiaries of Financial Statements?
  • Who is actually holding the Reigns of Company?
  • What are the areas if Interest of Shareholders in Financial Statements?

Financial Statements & Board of Directors?

  • What is the Role of Board of Directors in Companies?
  • How Powerful is Board in Companies Management?
  • To Whom Board Represents?
  • Are Board Members Paid Employees of Companies?
  • How Much Board Contributes to Effective Management of Companies?
  • Who is the real agent of Shareholder in Companies Board or Shareholders?
  • Who is Responsible for True & Fair View in Presentation of Financial Statements to Stakeholders?
  • In Major Corporate Frauds, Were Boards involved?
  • What are the areas of Interest of Board in Financial Statements?

Financial Statements & Lenders

  • Who are Various Lenders to Companies?
  • Who are Secured Lenders and How Powerful They are to Effect Financial Statements of Companies?
  • Who are Unsecured Lenders?
  • What are the Areas of Interest of Lenders in Financial Statements?
  • Do High level of Gearing Provides Effective Control to Lenders Over Financial Operation of Companies?
  • How Lenders Directly Effect Companies Financial Affairs?
  • What are the Various Key Performance Indicators (KPIs) for Lenders to Feel Their Lending Secured & Healthy Reflected in Financial Statements.
  • What are the Yellow Signs For Lenders Contained in Financial Statements Which May Jeopardize Their Interests in Companies.

Financial Statements & Management

  • Why Financial Statements are a Matter of Interest for Management
  • Management is Divided in Three Parts i.e. Top, Middle & Lower, What are various areas of focus of Three Levels of Management in Financial Statements?
  • Management While Being Responsible to Prepare Financial Statement can Effect the True & Fair View of Financial Statement?
  • What the Most Vulnerable Areas of Financial Statement Over Which Management can Effect.
  • What is Creative Accounting & How it can be Identified in Financial Statements?
  • What is Overtrading and how the Symptoms of Over Trading Can be Found in Financial Statements?
  • What is Window Dressing & How it can be found out in Financial Statements

Financial Statements & Investors

  • In What Investors are more interested in before investment Profitability or Liquidity & Solvency?
  • How Capital Structure Influences Investors Decision?
  • If an Investor Decides to invest in a business despite of persistent losses, what may be his area of focus in Financial Statement?
  • What are various risk elements investors focuses while investing in highly profitable companies?
  • Do Investors intend to convert highly geared companies into leveraged one if they are profitable?
  • What is the difference in viewing Financial Statement between a Short Term Investor as Compared to one who is Strategically Interested in Maintaining Investments ?

Components of Financial Statements

  • A financial statement of the business as at a specific point in time
  • Reports at a specific point in time where the money invested in the business came from and how it is currently invested

Analysis of Financial Statements

  • What is the difference between a cash rich and cash deficient organization?
  • Are surplus cash reserves are a reflection of good financial management?
  • Cash less organizations have less control on short term decision making then cash rich organizations?
  • Why some organizations intend to become cash rich?
  • Does good cash flow management contribute in high profitability of organization?
  • Ageing schedule

Analysis of Financial Statements

  • Historic cost ( Book value)
  • Net Realizable value (NRV)
  • Replacement cost

Analysis of Financial Statements

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