Section 5: Interpretation

Knowing what the financial statements are is very important, but it is only halfway there. Now that you understand the basics, the next step is to take this information and interpret what it is saying.

What do the numbers mean?

Are they good or bad?

Here are some key pointers to remember when reviewing financial statements.

This article asks you to consider the following 6 Steps when analyzing financial statements:

1. Identify the industry economic characteristics.

2. Identify company strategies.

3. Assess the quality of the firm’s financial statements.

4. Analyze current profitability and risk.

5. Prepare forecasted financial statements.

6. Value the firm.

Reflections

Even after you complete these 6 steps, the author of the article above challenges you to then ask your team "Can we even trust the numbers that are being provided?"  Although calculating and creating financial statements can be helpful, as with anything in the business arena, use caution and create a system of checks and balances to make sure you are not being overly aggressive with your numbers, forgetting anything or simply making a mistake.