The Comprehensive Guide on How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, + Website

CHAPTER 1

FINANCIAL STATEMENT BASICS

THE REAL MEAT AND POTATOES OF FINANCIAL REPORTS

To start this book it is important to understand that every for-profit business, nonprofit organization, governmental entity, and/or just about any type of “entity” you can think of need financial reports or financial statements (which represent the meat and potatoes of the financial reports). Without financial statements, managing the interests of these entities would be damn near impossible. Creditors such as banks, suppliers, landlords, and the like would not be able to assess the economic performance of the entity (and decide if credit should be extended). Management would not be able to determine how the entity is performing, including the rather novel concept of whether the entity is actually making or losing money (something the federal government doesn’t appear to have to worry about but we’ll leave this topic for another time). Investors would not be able to determine if their investments in the entity are actually worth anything. And completing and filing periodic tax returns to the slew of taxing authorities all entities must inevitably comply with would be challenging, to say the least.

Countless other examples of why financial statements are needed could be cited, so rather than burn an entire chapter on listing every potential scenario, let’s stay focused on two important acronyms as they apply to financial statements.

As we proceed through this book and assist the reader with understanding ...