Understanding corporate financial results is not difficult, but it does take some knowledge of accounting terminology and keeping a few basic corporate finance concepts in mind. Ninety-nine percent of the information one needs to assess a public company's finances before investing can be found in their financial statement, which by law must be produced quarterly and annually. Earnings, of course, are the ultimate gauge of corporate performance, but how a company achieved those earnings and future prospects for earnings are also key questions.
Understanding a Financial Statement
Read the balance sheet section of the financial statement. The balance sheet sheet details the basic performance metrics of the company for the reporting period including gross income and total expenses, and eventually brings the numbers down to the bottom line of net earnings for the period. The income report section of a financial statement details all of the gross income as well as offsetting expenses and allowances. The cash flow statement breaks down all the cash inflows and outlays during the reporting period, and the bottom line here is the final cash balance.
Get a Grip on Earnings per Share (EPS)
Just having the final dollar figure for net earnings does not tell investors a lot about financial performance unless they have something to compare it to to, so the final section of the income report of a financial statement will express the earnings for the period as the net earnings for each share outstanding for that particular company (EPS).