Financial statements: Understand them well, and you'll make better investment decisions.

In this era, most Thais are preoccupied with money. Some sit and save, others try to find investment channels. But before investing in anything, investors should understand what Financial Statements are for and how they can help us make smarter decisions because real data (FACT) from financial statements is less valuable than expert opinions or technical analysis.

What are Financial Statements and Why Are They Important?

Financial Statements (Financial Statement) are documents that summarize a company’s financial information over a specific period (Quarter, Year) to show the company’s financial position, profit or loss, and cash usage. When investors study Financial Statements correctly, they will understand the company’s profit-loss, cash flow, assets, liabilities, and other financial figures.

For companies, preparing Financial Statements is not only a legal requirement for government agencies (Department of Business Development, Revenue Department) but also useful for internal management. By analyzing these figures, executives can plan operations, make investment decisions, and manage resources more efficiently.

Essential Information: Components of Financial Statements (3 parts)

Financial Statements mainly consist of 3 key parts, each telling a different story:

1. Balance Sheet ( (Statement of Financial Position)

Provides an overview of the company on a specific date )e.g., December 31, 2022( showing assets, liabilities, and shareholders’ equity. A strong Balance Sheet indicates a solid financial position, capable of paying debts. This information helps investors assess the company’s asset management ability.

) 2. Income Statement ### (Profit and Loss Statement)

Reports whether the company made a profit or loss over a period (usually one year) showing total revenue minus expenses, then deducting taxes to arrive at net profit. Companies use this statement to plan long-term strategies and calculate taxes to file with the tax authorities. Knowing profit allows business owners to plan expense management and tax savings.

( 3. Cash Flow Statement ) (Statement of Cash Flows)

This is the “heart” of the company because it shows where cash inflows and outflows come from ###Operating activities, investing, or financing(. If a company has a good cash flow, it means it can control cash well and has liquidity for operations. Even if the Income Statement looks good but the Cash Flow Statement is poor, it’s a warning sign for investors.

Changes in Equity and Additional Reports

Besides the 3 main statements, there are important reports:

Changes in Equity )Changes in Equity( – indicates changes in shareholders’ equity, whether from issuing new shares, accumulated profits/losses, or dividend payments. Tracking these changes helps shareholders understand how assets and equity are managed.

Comprehensive Income )Comprehensive Income( – measures all financial impacts, including net profit from operations and changes in asset values at market prices )e.g., debt instruments or held shares(.

What can you learn from reading Financial Statements?

When investors or managers review Financial Statements, key points to check include:

• Is revenue increasing? – compared to last year
• Are there any abnormal expenses? – sudden spikes or unusual items
• How well are expenses controlled? – by profit margin ratios
• What is EBITDA )Earnings Before Interest, Tax, Depreciation and Amortization(? – measures operational efficiency
• Is Earnings Per Share (EPS) different from last year? – indicates profitability per share

Pros and Cons of Reading Financial Statements

) Advantages:

1. Clear assessment of financial health – see whether the company is strong or fragile
2. Informed investment decisions – not just guessing
3. Financial performance insight – where profits come from and resource utilization
4. Better risk management – identify potential financial dangers
5. Future growth planning – identify opportunities and obstacles

( Disadvantages:

1. Can be complex – especially for large companies
2. Data may be inaccurate – due to accounting errors or post-report adjustments
3. Numbers only – do not tell the full story behind the figures or external factors
4. Volatility from new policies – changes in accounting standards make comparisons harder

Where to find Financial Statements of US stocks?

Investors can access Financial Statements of US stocks through various channels:

Company websites – check “Investor Relations” or “Financials” )e.g., Tesla, Amazon(

Financial data websites – Investing.com, Bloomberg, Reuters, Yahoo Finance, Google Finance

Analyst reports – professional stock analyst reports with ratings and recommendations

Financial institution databases – banks and securities firms often provide Equity Research Reports

How to systematically analyze Financial Statements

For beginners, ask yourself these questions:

From the Balance Sheet:

• What is the total asset value?
• What is the total liability value?
• How much shareholders’ equity remains? )Assets minus Liabilities###

From the Income Statement:

• Did the company make a profit or loss last year?
• Has net profit changed compared to the previous year?
• What is the Net Profit Margin ###Net Profit Margin(?

Ratio analysis:

• What does the debt-to-asset ratio indicate?
• How capable is the company of paying debts?
• What is the return on investment )ROI(?

Why is it important to read Financial Statements?

1. Assess the true financial position – avoid relying solely on promises or partial data
2. Make informed investment decisions – reduce risks of wrong choices
3. Analyze efficiency – see how the company uses resources and generates profits
4. Manage risks – understand financial factors that may impact future performance
5. Evaluate shareholder value created – help decide on dividends and expansion plans

How to use Financial Statements for investing

After understanding Financial Statements, investors can choose various investment methods:

Direct stock investment – buy stocks directly, but requires opening accounts with foreign brokers

CFD trading )Contract for Difference( – an option for high leverage and flexibility. CFD advantages include:

• High leverage )up to 1:20 or more( – higher returns
• Can trade both directions )buy long and sell short(
• No minimum deposit constraints
• Suitable for medium and small investors

But beware – leverage benefits come with risks. Losses can exceed normal investments. Study and plan risk management carefully before entering the market.

What you should know about Financial Statements of non-profit organizations

Non-profit organizations )NGOs, foundations, associations( also prepare Financial Statements, but with different formats:

• Income and Expense Statement – shows income )donations, membership fees( and expenses )various costs(
• Statement of Financial Position – shows remaining funds and resource distribution
• Statement of Changes in Net Assets – shows additions and uses of resources

Summary

Financial Statements are vital tools that help investors, managers, and financial institutions make effective decisions. Studying and understanding Financial Statements thoroughly is an essential skill for anyone who wants to manage money wisely. If you lack accounting knowledge, consulting an accounting firm is a worthwhile investment to ensure your Financial Statements are accurate and fully useful.