How to Read Financial Statements: What Investors Should Look For

You don’t need to understand every single line in a financial statement for it to be useful.

You just need to know where to look, what the numbers usually hint at, and where they quietly stop being helpful.

Once that clicks, financial statements lose their intimidating edge and start feeling… surprisingly reasonable. And yes to a lot of us, that's still figuring things out, that’s progress.

How to Read Financial Statements Without Overthinking Them

Most people don’t struggle with financial statements because they’re complicated. They struggle because they try to understand everything at once.

You don’t need to.

Reading company results works better when you treat them like reference points. You check in. You notice what’s changed. You move on.

Over time, patterns start to form. That’s when understanding deepens, and over time you will see the same information behave differently across periods.

The Three Financial Statements You Should Focus On

Most company results include three main financial statements:

• the Balance Sheet

• the Income Statement

• the Cash Flow Statement

Each one looks at the business from a different angle, and each one answers a different question.

Balance Sheet: What It Tells You About Stability

What is a balance sheet?
A balance sheet shows what a company owns and what it owes at a specific point in time. It’s a snapshot of financial position.

When you look at a balance sheet, you’re mainly observing how the business is put together financially.

• Assets: What the company controls, especially how much is held as cash versus long-term assets like property or equipment.

• Liabilities: Liabilities show what the company owes, especially what needs to be paid sooner rather than later.

• Equity: The difference between assets and liabilities, representing the company’s financial buffer.

The balance sheet tells you whether it looks comfortable. And comfort matters more than people admit.

Income Statement: How the Business Performed

What is an income statement?
An income statement shows a company’s revenues, expenses, and profit over a period of time. This is where business activity becomes visible. 

• Revenue: Revenue shows how much money came in from doing business.

• Expenses: Expenses show what it cost to run the business.

• Profit (or loss): What remains after running the business, best viewed alongside previous periods.

Cash Flow Statement: How Money Actually Moves

If the income statement is the plan, the cash flow statement is what actually happened.

What is a cash flow statement?
The cash flow statement tracks how money actually moves in and out of the business.

• Operating cash flow: Cash generated from the company’s main business activities.

• Investing cash flow: Reflects how money is reinvested or pulled back.

• Financing cash flow: Financing cash flow shows how the business funds itself through borrowing, repayments, or capital raised.

Cash flow helps investors understand how day-to-day operations are funded, whether profit turns into usable cash, and how much flexibility the business has during more challenging periods.

Why One Number Never Tells the Full Story

If one number explained a company, investing would be much easier, and probably much more boring.

A single reporting period captures a moment. A few periods start to show direction. Longer sequences reveal patterns and behaviour.

That’s why company results become more meaningful when they’re read over time and alongside management explanations. Patterns beat perfection every time.

Financial results become more meaningful when they’re:

• compared year-on-year

• viewed as part of a sequence

• read alongside management explanations

How Financial Statements Are Meant to Be Used

Understanding Financial Statements Gets Easier Over Time

You don’t need expert-level knowledge to read financial statements.

You need curiosity, a bit of context, and realistic expectations about what company results can and can’t tell you.

Read a few. Revisit them later. Let the patterns form.

At some point, without much effort, it all starts making sense.

And that’s usually when investing feels less intimidating... and a lot more manageable.

Also: if you smiled even once while reading this, congratulations.

You’re officially doing finance correctly.

If you didn’t, that’s also fine. Not everyone makes it to the end of a finance article, and honestly, good for you for being here.

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