Financial Statement Analysis & Interpretation
Most business owners look at their profit and loss statement to see if they made money—then stop there. But that’s only one piece of the puzzle. Without understanding how to analyze all three core financial statements, you’re making decisions with incomplete information.
The Three Financial Statements You Need to Understand
Income Statement
Shows if you’re profitable over a period of time. Revenue minus expenses equals net profit. But profitable doesn’t always mean you have cash.
Balance Sheet
Reveals what you own (assets) versus what you owe (liabilities) at a specific moment. This tells you if you can actually pay your bills.
Cash Flow Statement
Tracks where your cash actually went—operating activities, investments, and financing. Profit doesn’t equal cash flow.
Key Analysis Techniques
Trend Analysis: Compare the same metrics across multiple periods. Is revenue growing? Are expenses increasing faster than sales?
Ratio Analysis: Calculate key ratios like:
- Profit margin (Net Income ÷ Revenue)
- Current ratio (Current Assets ÷ Current Liabilities)
- Days sales outstanding (Accounts Receivable ÷ Daily Sales)
Connect the Dots: Your net income flows to retained earnings on your balance sheet. Changes in receivables and inventory affect your cash flow.
Real-World Impact
I worked with a business owner showing $250,000 in profit who couldn’t make payroll. Why? 90% of sales were on 60-day payment terms. Profitable on paper, cash-poor in reality.
The lesson: You need all three statements working together to make smart financial decisions.
What Proper Analysis Reveals
Identify cash flow issues before they become critical
Find opportunities to improve profitability
Base expansion and hiring on solid data
Talk effectively with lenders and investors
Understanding your financial statements isn’t just about accounting—it’s about gaining clarity on your business’s true performance and making decisions that drive sustainable growth.
Need Help Interpreting Your Numbers?
Let’s have a conversation about what your financial statements are really telling you about your business.
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