Financial Management
A basic guide to creating and analyzing financial statements
By: Husain AlQaseer
February 1, 2014
What should you know about
financial statements?
 There are two basic concepts you need to focus on with regards
to financial statements:
 How to create your financial statements: Creating your financial
statements helps you record your company’s performance over
time.
 How to analyze your financial statements: Analyzing your financial
statements helps you better understand your company’s dynamics,
how to improve it, and how to compare it to other similar businesses
Creating your financial statements
 There are three basic statements in a set of financial statements:
 Income (profit and loss) statement – shows your revenues and
expenses over a period of time
 Balance sheet – shows a snapshot of the business as at a specific
point in time
 Cash flow statement – shows the movement of cash over a period of
time
Income statement
 An income statement, also known as a profit and loss statement,
has two basic sections:
 Revenues: Consist of all the income you make from you main
operations during a period of time
 Expenses: All expenses contributing to creating your revenues during
a period of time
 Profits = Revenues – Expenses
Income statement
Balance sheet
 A balance sheet presents a snapshot of the business at a specific point in
time
 There are three main parts in a balance sheet
 Assets: Consist of all assets owned by the business. This will include items such as
cash and fixed assets (cars, machines, etc).
 Liabilities: All liabilities or debts owed by the business. This will include items such as
bank loans
 Shareholders’ Equity: This is what the shareholders own in the business.
 The basic balance sheet formula is: Assets = Liabilities + Shareholders’ Equity
Balance sheet
Cash flow statement
 A cash flow statement shows the flow of cash through a business
during a period of time
 There are three main area of cash movement:
 Cash flow from operations: This shows the movement of cash
from/to the main operations of a business
 Cash flow from investing: This shows the movement of cash from/to
investments
 Cash flow from financing: This shows the movement of cash from/to
the capital of the business
Cash flow statement
Analyzing your financial statements
 One of the most important aspects of financial management is
using your financial statements to better understand your
business
 Below are some examples of useful analysis equations:
 Net profit margin: This shows you the percentage of your revenues
that turn into profits
 Debt to assets: This shows you what percentage of your assets is
financed by debt
 Let’s have a look at the financial statements to better
understand how you can analyze your business
Income statement
Balance sheet
Cash flow statement
Questions?