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 skill with financial statements, but you need to know basic financial accounting and be familiar with the primary types of financial statements—the balance sheet, the income or P&L statement, and the cash flow statement—what information each conveys, and how they relate to one another. If you aren’t familiar with financial accounting, we strongly recommend you spend extra time on the next few sections, because on the Series 79 exam you will be presented with one or more financial statements and asked to perform calculations based on their contents.
For simplicity’s sake, throughout this section we’ll talk in terms of annual financial statements. Of course, financial statements may be annual or quarterly, or may cover some other period relevant to the company. But whatever period is covered, it is important that a particular set of financial statements all cover the same period. This means that the income and cash flow statements should have identical start and end dates, and the balance sheet should be a “snapshot” of the period’s end date.
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. For instance, the footnotes disclose in detail the specific securities and maturities that make up a single line item, such as long-term debt.
SUMMARY TABLE
A Primer on the Main Types of Financial Statements
