Our senior reporter tackles a daunting task for new investors; reading financial statements Video Credit: Gulf News

Dubai: Financial statements can be broken down into income statement, cash flow statement and a balance sheet

Balance Sheet

The balance sheet summarises a company’s assets, liabilities and shareholders’ equity, which is the difference between assets and liabilities. Analyse a company’s level of debt with respect to its assets and equity. Companies with high debt levels lose operational flexibility.

Income Statement

The two key lines on an income statement are the top and bottom lines. The top line is the revenue and the bottom line is the net income. You subtract cost of goods sold, administrative, marketing and other expenses from revenue to calculate net income. The stock markets pay particular attention to earnings per share, which is the ratio of net income, after subtracting preferred dividends, to the number of outstanding common shares.

Statement of Cash Flows

The statement of cash flows summarises the cash inflows and outflows from various activities.

Management Discussion and Analysis

Always remember to ask shareholders for outlook on revenues or profitability, new investment plans among others.