What You Need To Know About Financial Statements

Prudent investors should only consider investing in companies with audited financial statements, which are a requirement for all publicly traded companies. Before digging into a company's financials, the first thing to do is read the auditor's report . A "clean opinion" provides you with a green light to proceed. Qualifying remarks may be benign or serious; in the case of the latter, you may not want to proceed.

Consolidated Financial Statements

Generally, the word "consolidated" appears in the title of a financial statement, as in a consolidated balance sheet . Consolidation of a parent company and its majority-owned (more that 50% ownership or "effective control") subsidiaries means that the combined activities of separate legal entities are expressed as one economic unit. The presumption is that a consolidation as one entity is more meaningful than separate statements for different entities.

The financial statement perspectives provided in this overview are meant to give readers the big picture. With these considerations in mind, beginning investors should be better prepared to cope with learning the analytical details of discerning the investment qualities reflected in a company's financials.