What are financial statements? Well, there are three main financial statements. The first is the income statements, the second is the balance sheet and the last one is the cashflow statements. These three together make up the financial statements and they give a record of an organization's activities and financial position. We firstly look at the creators of accounts. This is generally done by accountants, and they'll be working as some kind of financial reporting role. They need to bring together lots of different pieces of information and put them together in a manner that people will understand. The creators are very different from the users of sets of accounts. The users want to take the numbers and try and dissect some extra information. For instance, we might look at the management. The management of a company have to make important business decisions and if they can understand the company in greater depth, maybe look at some trends from this year compared to last year, then that will help them make the best decision for the company as it stands today. We can also look at investors or analysts who provide advice to investors. They want to know whether we should be investing in this company at all. Is it the kind of company that fits with my current investments, or where I want to go? Competitors are also interested in finding out about my financial statements. What profit do I earn? What price do I charge for my products? What new products am I going into? Employees have a particular interest in the company as well. If we think current employees want to know how healthy the company is and future prospective employees are also interested in seeing, where the company is going, and does it look like the kind of company I'd be interested in joining? For the same reason, suppliers, they want to make sure that they can be paid. The company generates enough cash in order to pay its bills. For these users to conduct their analysis, we need to come up with some new figures. Those new figures are going to be in the form of ratios or metrics. For instance, from those three financial statements above, we can work out how long it takes a company to pay its bills. If it takes a very, very long time for a company to pay its bills, that might be an indication that the company is in difficulty. Alternatively, we can work out the profitability of a company. If it sells a product for a dollar, we might want to work out how much profit that generates, i.e. how much return can be given to investors. If that dollar only generates maybe 1 cent of return for investors, that's not very good, but if that dollar can generate 50 cents for returns, that's fantastic, that's a great return for investors. Analysis allows us to find these ratios and allows us to compare maybe, with prior years or with comparable companies. While accounts can look very different, some of them very plain, while others have very glossy pictures, and accounts can seem quite daunting, sometimes looking as if they're written in a different language, there are in fact the same basic principles underpinning all sets of accounts all around the world. Therefore, a little bit of understanding goes a long way when it comes to financial statements.