The Guide To Understanding Financial Statement – How To Read A Financial Statement
Income statements and balance sheets are two common annual financial statements. These reports contain information about a companys performance that year and present a snapshot of the health of the company at a given point in time. Publicly traded companies are required to file them to the SEC and they are available to the public through EDGAR. Understanding the information contained in them can help an investor make better decisions. An income statement will always contain figures for revenue, cost of goods sold (COGS), selling, general, and administrative expense (SG&A), and earnings.
Revenue is gross income. It is the total income before any deductions are made for taxes, etc. COGS is the cost of purchasing raw materials and production costs. This is where accurate inventories are important because COGS equals the beginning inventory plus the cost of produced goods during the previous year, less the previous inventory. COGS figures show the cost of producing goods. These costs can show how well managed a firm is. SG&A expenses are the sum of salaries,...
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