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Figuring Out Financial Reporting

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Financial reporting gives readers a summary of what happens in a company based purely on the numbers. The numbers that tell the tale include the following:

 Assets: The cash, marketable securities, buildings, land, tools, equipment, vehicles, copyrights, patents, and any other items needed to run a business that a company holds

 Liabilities: Money a company owes to outsiders, such as loans, bonds, and unpaid bills

 Equity: Money invested in the company

 Sales: Products or services that customers purchase

 Costs and expenses: Money spent to operate a business, such as expenditures for production, compensation for employees, operation of buildings and factories, or supplies to run the offices

 Profit or loss: The amount of money a company earns or loses

 Cash flow: The amount of money that flows into and out of a business during the time period being reported

Without financial reporting, you'd have no idea where a company stands financially. Sure, you'd know how much money the business has in its bank accounts, but you wouldn't know how much is still due to come in from customers, how much inventory is being held in the warehouse and on the shelf, how much the firm owes, or even how much the firm owns. As an investor, if you don't know these details, you can't possibly make an objective decision about whether the company is making money and whether investing in the company's future is worthwhile.

Reading Financial Reports For Dummies

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