Understanding Financial Statements

But it is pretty to see what money can do. --Samuel Pepys

Companies do many things: build cars, process data, provide services, and even launch satellites. But the underlying purpose for all for-profit companies is to make money. As a for-
profit manager, your job is to help the company make money--preferably, more money each year. Even if you work in the nonprofit or government sectors, where net income is neither the only nor the most important bottom line, it is still vital that you carefully monitor how much money comes in and where it gets spent.

You can help your company make money by reducing costs, increasing revenues, or both. You can also help the organization be financially successful by making good investments and using its assets to their fullest extent. The best managers don't just mind the budget--they look for the right combination of controlling costs, improving sales, and utilizing assets.

How's your company's financial health? Where does its revenue come form, and where does it spend its money? How much profit is it making? Where is its cash coming form, and where is it going to? Companies provide answers to such questions in three documents, called financial statements: the income statement, the balance sheet, and the cash flow statement.

ACTION POINT: Consider the questions above to evaluate your organizations health.