Looking back, I was a late financial bloomer. I suspect we all are. I started my career as an engineer in my first career. I have heard that the average person has about seven careers in a lifetime these days. That sounds about right from my experience.

I hopped from company to company in Silicon Valley and NYC and rose to the top of my field in a few years.

It was a fantastic journey. I became an audio/video systems engineer and designer for ABC television. My clients in the company were sports and news, and I traveled the world, participating in broadcast events.

One day I picked up the latest glossy annual report and browsed through it. I realized then and there that I couldn’t read a financial statement. I didn’t know what was in them or how they were constructed. That was too much cognitive dissonance for an engineer, and that is when I decided to get my MBA and decipher this foreign language.

It took me quite a journey to finally understand the intricacies of financial statements. It’s not that challenging. Here are the basics so you can start your journey.

It is knowledge worth having. If you work for a company, you should gauge their financial health, and if you invest in the stock market, you should know what you are buying.

Financial Statements are the end product of accounting. They are what the accounting process makes.

Three Financial Statements

There are three primary financial statements, and they are linked together to provide a picture of an enterprise’s financial position and health. They represent the end product of accounting, meaning they are the reports generated by accounting covering all of a company’s transactions.

The three primary financial statements are the

· Balance Sheet: which shows the firm’s assets, liabilities, and net worth on a stated date

· Income Statement: also called profit & loss statement or the P&L: which shows the net income of the firm over a stated period, and

· Cash Flow Statement: This shows the inflows and outflows of cash due to its activities during a stated period.

Knowing how to read and understand financial statements is a business skill you can’t ignore. It can help work your way up the corporate ladder by communicating with others and understanding the big picture. It is also a useful skill to know where your efforts and work can make the most impact.

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