How to Read a Financial Statement - a PDH Online Course for Engineers, Architects and Surveyors

How to Read a Financial Statement

Course Outline

In this course we will analyze each of the three basic financial statements in detail, as well as other statements and key indicators of the financial well-being of the company. The first section is an overview of the financial statements, followed by detailed explanations of the Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Retained Earnings.

This course includes a multiple-choice quiz at the end, which is designed to enhance the understanding of the course materials.

Learning Objective

After taking this course you should,

Understand how financial transactions are grouped and categorized;
Know how financial statements are related;
Recognize the sources and uses of cash in a business;
Know how to calculate various financial ratios;
Understand how to evaluate the financial health of a company;
Know the difference between an asset and a liability;
Know the difference between a revenue entry and an expense entry;
Understand what a Balance Sheet tells us;
Understand what an Income Sheet tells us;
Understand the purpose of a Statement of Cash Flows;
Understand the relationship between the Income Statement and the Balance Sheet;
Understand how net income flows to the Balance Sheet;
Know the difference between accounts receivable and accounts payable;
Know how debt is presented on the Balance Sheet;
Know how depreciation is handled on the Income Sheet;
Know the various depreciation methods;
Understand how stock is shown on the balance sheet;
Know the difference between net income and cash; and
Understand what the current ratio tells us about the financial health of a company.

Intended Audience

This course is intended for anyone who wants to learn how to read and interpret the financial statements of a company.

Benefit to Attendees

This course is a brief introduction to the financial statements used to report the financial condition of a company. Taking this course will give you a better grasp of how a particular company is doing financially. This can be valuable whether you are trying to determine the value of a partnership, the viability of a vendor, or a customer.

Course Introduction

This course explains how to read and interpret the financial statements of a business enterprise. It is not an accounting course and it is written by a non-accountant for non-accountants. The purpose of the financial statements of a company is to provide information on the profitability and economic well-being of the organization. Accounting and the corresponding financial statements are the “language of business” and allow business owners, investors, bankers, and others to understand how the business is doing.

Everyday hundreds of financial transactions take place in the normal course of business and without some mechanism to compile and organize the transactions they would just be a mind-numbing jumble of data. To bring order to this chaos, accountants developed standard reporting guidelines for business data. The guidelines allow us to summarize a large number of transactions into groupings of similar transactions.

The standard reporting format includes three primary reports: The Balance Sheet, the Income Statement, and a Statement of Cash Flows. Sometimes other reports are included such as a Statement of Retained Earnings. To insure consistency, the reports must comply with guidelines known as Generally Accepted Accounting Principles (GAAP). GAAP is a set of accounting and financial reporting standards administered by the Financial Accounting Standards Board (FASB). More information about FASB can be found at www.FASB.com.

Course Content

This course content is in the following PDF document:

How to Read a Financial Statement

Please click on the above underlined hypertext to view, download or print the document for your study. Because of the large file size, we recommend that you first save the file to your computer by right clicking the mouse and choosing "Save Target As ...", and then open the file in Adobe Acrobat Reader. If you still experience any difficulty in downloading or opening this file, you may need to close some applications or reboot your computer to free up some memory.

Course Summary

Everyone in business today should have a fundamental knowledge of the “language of business”, which are the financial statements generated by a business. In this course we have looked at how to read and interpret the basic financial statements of a company. It is important to understand financial statements because they provide us with clues about the financial well being of the organization.

We have studied the financial statements of a fictitious company including its balance sheet, income statement, statement of cash flows, and retained earnings to gain a better understanding of commonly used financial terms. From this study we have shown how the various statements are related.

Finally we looked at several key indicators of financial performance to understand the profitability and liquidity of the company.

Quiz

Once you finish studying the above course content, you need to take a quiz to obtain the PDH credits.

DISCLAIMER: The materials contained in the online course are not intended as a representation or warranty on the part of PDH Center or any other person/organization named herein. The materials are for general information only. They are not a substitute for competent professional advice. Application of this information to a specific project should be reviewed by a registered architect and/or professional engineer/surveyor. Anyone making use of the information set forth herein does so at their own risk and assumes any and all resulting liability arising therefrom.