redirect their attention back to counting the hairs growing out of people’s
ears, fantasizing about dating the newest employee, and guessing
who has the most expensive suit in the room.
Why does the very mention of a financial presentation instill
boredom in an audience even before it starts? If marketing executives
had designed financial statements, they would no doubt be filled with
dazzling images and memorable slogans. If information technology
specialists had designed these documents, they would probably contain
flow charts showing logically how all the parts of the business fit
together. However, we have to face facts. Financial statements are
designed by accountants, which means we have to make do with
lengthy tables of figures coupled with technical jargon that most people
don’t understand.
Believe it or not, financial statements are inherently exciting documents
because they tell you how a business has been trading. A set of
annual accounts is a summary of everything a business has done during
the previous year. Investors should be clamoring for these reports
to find out what is happening to their wealth. Managers should be
equally enthusiastic to find out how successful they have been at managing
the business. Financial statements can tell you what is going
right and what is going wrong. Although they may at first sight appear
rather bland, you will discover you can extract a lot of valuable information
in a very short period. In this chapter we are going to examine
the most commonly encountered financial statements, what
they tell us about a business, and what all the jargon means.
What is the role of financial statements?
Financial statements enable investors to assess how effective a
business is at providing them with a return on their investment. It follows
that these documents ought to be answering the questions
investors want addressed. Therefore, to appreciate financial statements,
you need to think like an investor.
What motivates investors is their rate of return. Simply being
told how much profit a business has made during a period is not
much use on its own. To decide whether or not this figure is
ears, fantasizing about dating the newest employee, and guessing
who has the most expensive suit in the room.
Why does the very mention of a financial presentation instill
boredom in an audience even before it starts? If marketing executives
had designed financial statements, they would no doubt be filled with
dazzling images and memorable slogans. If information technology
specialists had designed these documents, they would probably contain
flow charts showing logically how all the parts of the business fit
together. However, we have to face facts. Financial statements are
designed by accountants, which means we have to make do with
lengthy tables of figures coupled with technical jargon that most people
don’t understand.
Believe it or not, financial statements are inherently exciting documents
because they tell you how a business has been trading. A set of
annual accounts is a summary of everything a business has done during
the previous year. Investors should be clamoring for these reports
to find out what is happening to their wealth. Managers should be
equally enthusiastic to find out how successful they have been at managing
the business. Financial statements can tell you what is going
right and what is going wrong. Although they may at first sight appear
rather bland, you will discover you can extract a lot of valuable information
in a very short period. In this chapter we are going to examine
the most commonly encountered financial statements, what
they tell us about a business, and what all the jargon means.
What is the role of financial statements?
Financial statements enable investors to assess how effective a
business is at providing them with a return on their investment. It follows
that these documents ought to be answering the questions
investors want addressed. Therefore, to appreciate financial statements,
you need to think like an investor.
What motivates investors is their rate of return. Simply being
told how much profit a business has made during a period is not
much use on its own. To decide whether or not this figure is
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