The Balance Sheet is divided into 3 sections:

• Assets
• Liabilities
• Capitalization or Net Worth (assets less liabilities)

The Income Statement is divided into:

• Income (sales and revenue are the same thing)
• Cost of goods sold (producing inventory)
• Gross profit (earnings before expenses)
• Expenses (overhead)
• Reserve for taxes
• Net profit or earnings after all expenses

The Cash Flow Statement is divided into:

• Adjustments to income
• Changes in assets and liabilities
• Cash flow from non-operating activities
• Financing activities such as sale of stock or bonds
• Net change in cash and cash equivalents

When you look at a company’s statements, sales and profits going up is good, going down is bad. Cash flow going up is good, going down is bad.

Where does an investor find these financial statements? One way, is calling the company and ask for the investor-relations manager. They will be happy to send you an annual report.

You can view the latest quarterlies at many financial websites. Yahoo’s http://finance.yahoo.com/ is a good place to look - go to “stock research / financials”, or try the government’s SEC site at www.freeedgar.com.

Other Stock Market Basics Topics:

1. Stock Market Investing – the Right Way
2. More Stock Marketing Investing
3. How to Pick Winning Stocks
4. The Golden Rule of Investing
5. Avoid Psychological Traps to Have Successful Investing
6. Changes in Stock Values Can Be Big Numbers
7. How to Invest Smart
8. Stock Advice - Important Selling Rules
9. Poor Stock Buying Decisions
10. Market Indicators
11. Stock Market Cycles
12. When a bear stock market may not be a bear market
13. Stock Index Futures
14. Four Things that Affect Stock Valuation
15. What is a P/E ratio?
16. Value Investing
17. Cheap Stocks
18. What is a Financial Statement?
19. Analyzing Financial Statements
20. Stock Market Tip - Red Flags to Look For When Investing?
21. The Annual Report – How to Read
22. Stock Market Analysts – Stock Market Advice and Tips