Reading the Financial Pages for Dummies®

Chapter 17. Understanding Company Accounts

In This Chapter

• Working out how much you actually need to know

• Going through the profit and loss statement, the balance sheet, and the cash flow statement

• Introducing shortcuts that can save you time and improve your view

If you want to know what a company's really doing, get your information straight from the horse's mouth. Instead of relying on what the morning papers say, or on what you've been told on the Internet, just get yourself a copy of the company's latest accounts and make up your own mind about what sort of state it's in and what its prospects are.

Well, that's the theory anyway. And in principle I can't disagree with it. The snag is that company accounts can be pretty daunting when you get up close and personal with them. The annual report may contain 20 pages of solid statistics, bristling with complications and footnotes and extra columns that really don't seem to mean anything obvious. Absolutely terrifying.

Okay, the chairman's report probably gives you the general gist of the situation, and if you're really lucky you may get a few pie charts and other graphics that give you a feel for the way things are going. But surely, that's just the company trying to put the best possible gloss on its performance? Aren't you trying to do a bit better than that? How much expertise do you really need?

Introducing Company Accounts

The fundamentals of company accounts are really very straightforward, because they conform to a completely standardised ...