Financial statements

The most important windows into a company’s fundamentals are its financial statements.

How to find them

In Canada, public companies are required to file their financial statements and any amendments to them on SEDAR. In the United States, they must file them on EDGAR. If you want to review financial statements and other relevant documentation that public companies are required to file, these are great places to get started.

There are several types of financial statements that provide investors with fundamental information about a company.

Balance sheet

A company’s balance sheet shows you the financial position of a company as of a certain date, usually as of the last day of a fiscal quarter or fiscal year. The balance sheet shows you the assets of the company (what it owns), the liabilities of the company (what it owes), and the shareholder’s equity in the company (what the company is worth as of that date).

Earnings statement

This shows you how much revenue the company took in during a given period, and what they company had to spend to operate its business during the same period. If the company took in more revenue than it spent on running its business, then the period was profitable for the company. If it spent more than it made in revenues, then it suffered a loss during that period.

Retained earnings statement

If a company reported a profit on its earnings statement and opted not to pay that money out to shareholders in the form of a divided, then the company has retained those earnings. These are reported on the retained earnings statement.

The company may use retained earnings to make strategic investments in the business or make an acquisition.

Cash flow statement

A company’s cash flow statement tells you where the company’s money came from and where it had to spend it in a given period. Rather than just showing you the “bottom line,” it shows you how that bottom line came to be. For example, are higher earnings the result of stronger sales or reduced costs? Is there more cash coming in, or has the company simply slashed expenditures for the time being to achieve higher earnings? The cash flow statement can answer questions like these and give you insight into a company’s financial direction.

Annual financial reports

At the end of the fiscal year (which may or may not correspond to a calendar year), a company reports its financial results for the year. In addition to the financial statements for the entire fiscal year, it includes detailed discussion on how the business has fared. It also contains an auditor’s report that attests to the validity of the company’s accounting practices.

Management discussion and analysis (MD&A)

This is a document filed along with a company’s financial statements that discusses the company’s financial results in more detail. For example, management may give more background on why the company took a loss on an operation, and what the prospects for that operation are or what the company is doing to fix the problem that caused the loss. It simply provides more information to shareholders about the company’s financial health.