Financial knowledge is virtually synonymous with business acumen. Keep the following three tips in mind when reading the financials for trends and insights.
Read the footnotes. They are bursting with information, including significant accounting policies and practices, income tax breakdowns, pension plans and retirement programs, and stock options. Retirement plans may be nearer and dearer to your heart than anything else—notes can indicate whether they are properly funded.
Don't skip the MD&A. Although the title is ridiculously long, the Management's Discussion and Analysis of Financial Condition and Results of Operations contains management's view of financial performance and the overall health of the company. Isn't that exactly what we need to know?
Read a variety of financial statements for a balanced perspective. Financial statements are close relatives to one another—but not identical twins. Reading one statement is good; reading several is much better. Although the assets and liabilities on the balance sheet are reflected in the revenues, and expenses on the income statement, they are different views. Reading several financial reports will give a more well-rounded outlook of the company's financial health.
These tips were adapted from the December 2012 Infoline, "Performance Improvement: Making the Financial Case," by Clare Novak, available at www.astd.org/Infoline.
