All companies use money to perform activities, and financial statements are the tools to track the sources and uses of money. Financial statements give information to managers to help make good decisions; they also communicate to investors and lenders who put funds into the company. They are relevant at all sizes of enterprise, from a corner grocery store to a multinational corporation.Read more...
Understanding financial statements helps anyone make sense of the decisions a company makes. It is a necessary skill for senior management, who are responsible not only for the operating activities of a company but also for its financial integrity.
This course starts with a differentiation between the two major “flavors” of money, debt and equity, identifying the concerns and focus of each type of funds. It then proceeds to the three major financial statements, the income statement, balance sheet, and statement of cash flow; we explore critical issues for each. Key concepts include:
• Differentiating cash from earnings, and recognizing decisions in which one or the other is critical.
• Understanding the importance of the balance sheet to lenders, who have the power to push a company into foreclosure: what makes a lender feel secure?
• Seeing management’s role in deciding the relative amounts of debt vs. equity, and the consequences of that decision.
• Using the statement of cash flow to understand management’s values, and using that statement to help align companies with appropriate investors.
This course was originally developed for companies in the oil and gas industry, so the examples cited reflect that. However, financial statements are relevant to any company, and the lessons in this course are universal.