Understanding, Analysing and Interpreting Financial Statements

Understanding, Analysing and Interpreting Financial Statements


A Step-by-Step Guide for Entrepreneurs, Business Owners and Non-Financial Managers

  • eBook in PDF format, accompanied by an Excel workbook containing eleven spreadsheet files supporting the content of the book.
  • Overview of Financial accounting concepts.
  • Structured process for analysing financial statements.
  • Overview of the three key financial statements; Balance Sheet, Income Statement and Cash-Flow Statement.
  • Detailed analysis of the Balance Sheet, line-by-line.
  • Format, content and structure of the Income statement
  • Detailed analysis of income statement line items.
  • Explanation of the difference between the Cost of Goods Sold in Manufacturing and Trading companies.
  • Understanding Gross Margin
  • Understanding and analysing the Cash Flow Statement.
  • The basics of Ratio Analysis for analysing the financial health of an organisation, including solvency, liquidity and profitability.


Understanding, Analysing and Interpreting Financial Statements

A Step-By-Step, How-To Guide for Entrepreneurs, Business Owners and Non-Financial Managers

An entrepreneur, business owner or manager must be able to understand, analyse and interpret financial statements. If you need help then this book is for you. This step-by-step book will give you the knowledge and skill you need. You will learn how to read and understand three key financial statements. They are the Balance Sheet, Income Statement and Statement if Cash Flows.

You will also learn about the role of the financial accountant and the accounting cycle, methods and concepts. While this book focuses on the financial statements of a manufacturing business, the concepts can be applied to any type of business.

Role of Financial Statements

We use financial statements for two main purposes. First, we use them to manage the business and help make business decisions. Second, we use them to understand the financial performance and health of the business.

When we analyse financial statements we can draw important conclusions about the profitability and sustainability of the organisation. As a result of this analysis we are able to identify any existing problem, or potential problem areas that need attention or corrective action.

The approach we follow in this book is to look at each of the financial statements in detail. We do this by studying the structure and form of the financial statement. Then, we analyse each of the statements line item by line item. In this way we build up our knowledge step-by-step.

Sequence of Analysis

First, we start with the Balance Sheet. In this document we detail the assets and liabilities of the business. We also record the amount of money the owners’ have invested or loaned the business; this is known as the owners’ equity.

Then, we look at the Income Statement. This document gives us an idea of the income or revenue, the expenses and the profitability of the business.

After that, we discuss the Statement of Cash Flow, also known as the Source and application of Funds statement. This document indicates where the money has come from, and where it has been spent.

Assessing Financial Health

Finally, we analyse key numbers from the Balance Sheet and Income Statement to determine the organisation’s financial health. We do this through a technique known as Ratio Analysis.

By the end of the book you will know how to read, analyse, interpret and understand financial statements. We have also included an Excel workbook file containing eleven spreadsheets populated with the data from the book.



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