From the course: Running a Profitable Business: Understanding Financial Ratios

What are the financial statements?

From the course: Running a Profitable Business: Understanding Financial Ratios

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What are the financial statements?

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- What's a balance sheet? - Well, a balance sheet is a listing of a company's valuable resources, its assets, and a listing of where the company got the money to buy those assets. - Where do companies get money to buy assets? - Well, there are three general sources. First, they can borrow it. Second, the owners can take money from their private savings and invest it in the business. And third, the company can generate profits that are then kept in the business to buy more assets. - [Interviewer] Okay, a balance sheet is a listing of a company's assets and the sources of financing to buy those assets. - [Expert] Correct. - So, what's an income statement? - That's easy. An income statement is a report telling how much money a company made during the month or the quarter or the year, whatever period is covered by the income statement. - It seems like people are always talking about companies' income statements. - You often hear in the business news about a company's net income. - I've also heard about a statement of cash flows. What's that? - Well, let me give you a little lesson in accounting terminology. When in doubt, say it slowly. So, what is a statement of cash flows? It's a statement of a company's cash flows. - [Interviewer] So, just a report of cash in, cash out? - [Expert] That's pretty much it. - So, the three primary financial statements are the balance sheet, the income statement, and the statement of cash flows. - Perfect. - Of those three, which one's your personal favorite? - Oh. That's a tough question. I'll have to think about that.

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