Accountants You Can Count On

Ferreting Financial Fugazi

Like a doctor measures a patient’s health, accountants measure a business’s health through balance sheets, income statements, and cash flow statements. Each serves a unique purpose and provides numerous insights into a company’s financial health.

The balance sheet shows a company’s financial position at a specific point in time. It is structured around the accounting equation: Assets = Liabilities + Equity.

• Value of everything the company owns

  • Cash

  • Equipment

  • Investments

  • Accounts Receivable

• Value of everything the company owes

  • Accounts Payable

  • Outstanding Debt

  • Other obligations

• Value of shareholder’s equity

  • Stock

  • Retained Earnings

The income statement, also known as a profit and loss statement (P&L), reports a company’s financial performance over a period of time. These metrics help users evaluate profitability, cost management, and operational efficiency.

• Positives

  • Revenue

  • Investment Income

  • Depreciation

• Negatives

  • Cost of goods sold

  • Operating expenses

  • Fixed expenses

  • Taxes

The cash flow statement focuses specifically on the movement of cash in and out of a company during a period. It is divided into three main sections:

• Operating Activities

  • Core Business Operations, including goods revenue and production costs

• Investing Activities

  • Cash flow from long-term assets, including investment and equipment purchases

• Financing Activities

  • Cash related to debt issuance, repayment, and dividends.

A recurring theme for the next few weeks is that the first two statements can be manipulated; cash flow is king.