Financial statements open a window how healthy a company is (in terms of finances). This document presents the financial activities of a person or an entity. Basically, it presents the financial condition of an individual or business.

The tool is very useful especially for investors looking for prospective companies. Analysts often advise traders to do research. It can be achieved by reading and understanding the firm’s financial statements, as well as analyze the different items outlined in the document. Mind you, financial experts review financial statements to come up with a sound recommendation. And investors prefer entities with impressive financial report.

In this latest tutorial, ForexPedia endeavors to cover all important and relevant topics, as well as questions about financial statements by giving a concise, extensive explanation of the following: GAAP, system, cash slow, revenues and earnings, capital, assets and liabilities, and pension plans. Trust ForexPedia to expound the definition of terms used in a financial statement such as balance sheet, help you understand how to evaluate this financial report, and pinpoint the red flags and silver linings.

Before we proceed to the next tutorial, let’s have an overview. A person’s financial report is not that complicated. But for businesses, they need to consider a lot of factors. Normally, a company’s financial statements include cash flows, balance sheet, income statement, and statement of retained earnings. Some entities integrate other types of statements.

Corporations adhere to generally accepted accounting principles (more on this in the next session) to achieve continuity and consistency of details. Accountants, government agencies, and firms audit this report to ensure preciseness and adherence to tax regulations.

The next session will discuss the guiding principle for preparing financial statements. On the other hand, you may start reading the important terms used in financial statements by going to our Glossary section and searching the words in order to better understand the discussion.