In the first chapter, we discussed how to obtain data. That is unquestionably an important skill, but once you have the information—you’ve identified the universe of comparables, for example, and found sources of data for companies of interest—you’ll need to know what you’re looking at.
If you’re looking at a company’s numbers, chances are you’re dealing with one or more financial statements. For purposes of the Series 79, you are not expected to have accountant-level facility with financial statements, but you should know the primary types of financial statements—balance sheets, income statements, and cash flow statements—what information each type of statement conveys, and how they relate to one another. If you aren’t already familiar with these types of financial statements, you should take some time to get comfortable with their contents and format, because during the test you may be presented with one or more financial statements and asked to perform calculations based on the contents. We’ll provide a few examples to get you started.
Most financial statements contain a reference to “notes to consolidated financial statements.” You should always read the footnotes to financial statements. The footnotes provide important additional information about the company’s financials, accounting practices, and operations.
A Primer on the Main Types of Financial Statements
Statement Type
What It Is
What It Includes
Balance sheet
a.k.a.: statement of financial position, statement of condition
A “snapshot” of the company’s assets, liabilities, and shareholders’ equity at a specific point in time
