The Finance Professor: Getting Started With Financial Statements

Last time, I presented a guide to understanding earnings calls. The most anticipated and recognized facet of a company's financial report during a typical earnings call is its earnings per share (EPS) . The EPS (also listed as "net income applicable to common shares on a fully diluted basis") is referred to as the "bottom line" because it is the bottom line of a company's profit and loss statement (P&L, also known as the income statement).

While the EPS captures the media headlines and is the most-sought-after metric, it is only part of one of the three major components of a company's financial documentation that is necessary to understanding both the company's performance and its financial condition. The other two major financial statements are the balance sheet and the statement of cash flows.

In the upcoming weeks, I will highlight each of the individual financial statements. The objective of this series of lessons is to provide the necessary tools to ascertain financial information and understand those reports without having to possess a CPA (certified public accountant) or CFA (chartered financial analyst) designation. (However, it is the role of the CPA to audit and certify the financial statements that will provide the independent account.)

This week, let's kick off this multipart examination of financial statements by looking at the annual report and 10-K for a lesson on financial and regulatory reporting.

Getting Started

As is often the case with any research project, we start by aggregating information and materials that will provide the basis for our financial investigation. This prompts the questions:

What should I look for?

and

Where can I find it?

Here is our punch list:

• Form 10-K
• Form 10-Q
• Annual Report

These documents can usually be found in the "Investor Relations" section of a company's Web site.