📊 Financial statements may seem like a "maze" of dry numbers at first glance, but hidden within them is a story — one that tells the journey of a business's growth, challenges, and opportunities.
Have you ever wondered: How can we "decode" these complex figures to gain a clear, comprehensive picture of a company's financial health?
📈 Knowing how to read and analyze financial statements is a crucial skill that helps investors assess a company's current financial status, business performance, and future prospects — all essential for making accurate and effective investment decisions.
According to accounting regulations in Vietnam, a standard set of corporate financial statements typically includes:
✅ Balance Sheet
✅ Income Statement
✅ Cash Flow Statement
✅ Notes to the Financial Statements
Whether you're an investor, business owner, or simply a finance enthusiast, the following guide will give you more confidence when navigating these powerful reports!
Let's explore 4 simple steps to help you read and understand financial statements with ease — brought to you by VPS!
1. Balance Sheet
The balance sheet presents a snapshot of a company's financial position at a specific point in time. It reflects the scale of assets owned and the sources of funds used to acquire those assets.
It includes two main components: Assets and Liabilities & Equity, with the latter divided into Liabilities and Owner's Equity.
Assets:
These are resources controlled by the business that are expected to bring future economic benefits. They are classified into:
- Current assets: Expected to be used within 12 months or one operating cycle, such as cash, receivables, inventory, short-term investments...
- Non-current assets: Used over more than 12 months or multiple cycles, such as fixed assets, long-term financial investments, long-term receivables...
Liabilities & Equity:
This section shows where the assets come from and the legal/economic obligations tied to those sources.
- Liabilities: Include short-term (under 1 year) and long-term (over 1 year) debts — a key funding source to support business operations.
- Owner's Equity: Funds contributed by the business owner(s), representing what's left after all debts are paid.
Accounting equation:
Total Assets = Total Liabilities + Owner's Equity
2. Income Statement
The income statement provides information on a company's performance over a specific period, highlighting revenue, expenses, and profit generated from operating, financial, and other activities.
Key indicators include:
- Net Revenue: Revenue from sales and services after deductions.
- Gross Profit: Revenue minus the cost of goods sold — indicating profitability from core business operations.
- Operating Profit: Measures profit generated from main business activities.
- Other Profit: Income or expenses from non-recurring activities.
- Profit Before Tax: Sum of operating and other profit.
- Profit After Tax: Net profit after deducting corporate income tax.
- Earnings Per Share (EPS): A key metric for evaluating profitability per common share.
3. Cash Flow Statement
This statement shows cash inflows and outflows during a period, categorized into:
- Operating Activities: Cash received from sales and services, payments to suppliers, wages, etc.
- Investing Activities: Purchase of fixed assets, long-term investments...
- Financing Activities: Capital raising, issuing shares, borrowing, and repaying loans.
Cash Flow Formula:
Opening Balance + Cash Inflows – Cash Outflows = Ending Balance
4. Notes to the Financial Statements
These notes provide supplementary and explanatory details for the data presented in the main reports, including:
- Nature of the company's operations
- Accounting period and currency used
- Accounting standards and policies applied
- Detailed explanations for each item in the balance sheet, income statement, and cash flow statement
Mastering and analyzing financial statements is essential for investors to assess a company's financial health and growth potential, enabling informed and effective investment decisions.
Let me know if you'd like a shorter version or want it tailored for a specific audience (e.g., beginner investors, internal training, etc.)!
