How to read financial statements

Start with the reporting period

Find the company's latest annual or quarterly filing. Record the period end, filing date, currency and units. A table stated in millions should not be compared directly with a table stated in thousands.

For a U.S. company, begin with its 10-K or 10-Q. The SEC's filing guide explains where to find the financial statements, business discussion and risk disclosures. An earnings release and a filed report may arrive on different dates.

Give each statement a job

• Income statement: what did the company earn and spend during the period? Separate sales, operating profit and net income.
• Balance sheet: what resources and obligations existed at the period end? Review cash, receivables, debt and upcoming liabilities.
• Cash-flow statement: where did cash come from and go? Separate operating, investing and financing activities.

The SEC's glossary describes these statements. Its cash-flow explainer shows why net income and cash flow need not match. The statement of shareholders' equity adds the changes in owners' interests.

Investigate differences, rather than scoring them

Suppose reported profit improves while operating cash flow weakens. Treat this as a question: did customer payments move between periods, did inventory rise, or did another item explain the difference? Open the notes instead of assuming misconduct or dismissing the result.

Then look at investment spending and financing. Ask whether an increase in cash came from the business itself, borrowing or a sale of assets. These are different research stories.

If you use free cash flow, check its exact definition and reconciliation. The SEC's non-GAAP guidance, question 102.07, cautions that it is not necessarily cash available for any discretionary use.

Try one company in ScalarQuant

Search for the company, open Financials and compare the same reporting periods. Use Quarterly and Trailing 12M as separate views. Check Data sources and the original filing for context the summary cannot show.

Write a three-line note: what improved, what needs explaining, and which disclosure you will read next. A missing figure stays unknown; do not substitute zero. Keep the note dated so the next report can challenge it.