What is a financial statement? In layman’s term, financial statement shows you where a company’s money came from, where it went and where it is now. Reading a financial statement can be hard to some people but once you learned the basics of financial statement, it will be easy just like reading an electricity, credit card bill or bank statement of account.

Actually, it isn’t difficult. If you know how to read a credit card bill, you can learn to read basic financial statements. Basics are not hard to learn, you only need a bit of patience.

Maybe you are thinking why do you need to understand a financial statement. As I said before, a financial statement will give you an idea of a company’s financial status. It is very important for a person to know the financial condition of a company before he buys its stocks or any investment it sells.

A financial statement will show you the company’s earnings, assets and liabilities. It is a helpful information that can be easily understand by people who like to know the financial condition of a company. It is not complex or complicated and normally it is in tables like a bank statement of account.

A financial statement can be separated into four parts: income statements, balance sheets, statements of shareholder’s equity and cash flow statement. Income statement shows how the revenue is converted to net income of the company. On the other hand, balance sheets indicates what a company owns or its assets and liabilities in a particular period.

A cash flow statement shows how changes in the income and balance sheets affect the income of the company, and reports the financing and investing events for a certain time. The last part, statement of shareholder’s equity indicates how many people are owning the company through stocks.

In summary, a financial statement is an important instrument to use to determine whether a company is profitable or not in terms of stock investing. It indicates the financial status of a company and details the over-all performance made by the company over a certain time.

Bert Tenorio is a personal finance blogger living abroad. In order to know quality details on investing in stocks and mutual funds and how to open Union Bank Philippines bank account, you can visit Financial Management blog for quality helpful articles on saving, investing and make money online.