Noelle Clemente
Quarterly Financials and Annual Reports are some of the resources used to obtain information for articles in the Business section. These articles contain a world of jargon that must be dissected to begin to understand the meaning and intention of these very important articles. Just as researching the history of the basketball coach is important to a good profile, understanding the meaning of these business reports is crucial to a comprehensive business article.
Financial Statements: quantitative statements about a company’s business transactions; generally include a profit and loss report and a balance sheet.
Profit and Loss Sheet (P&L): tells you if the company is making or losing money; calculated by subtracting expenses from income.
Cost of goods sold: costs for a company that makes its own product
Wholesale: costs for a company that buys and resells other products
Overhead: expenses not related to the product being sold
Gross Margin: difference between the cost of goods sold and the selling price
Net profit/earnings/income: the final number once you subtract ALL expenses from ALL earnings
EBITDA (Earnings before interest, taxes, depreciation, and amortization): operational cash flow; measures how much cash the business has to work with
Balance Sheet: shows a company’s assets, liabilities, and equity
**Assets = liabilities + equities**
Reading a balance sheet is similar to reading a P&L. There is extensive vocabulary involved in the total comprehension of the material. Understanding what those terms mean will help you understand what the sheet is saying. For a complete list of these terms, Math Tools for Journalists is a great resource. Briefly stated, each term is a more specified version of an asset, liability or equity; careful consideration can lead you to a definition without having to thumb through a book!
Ratio Analysis: examine the trend’s in a company’s life; often used to compare a company against other companies in the same field. This is not a detailed account like the P&L or Balance Sheet; rather, it is brief, only recognizing major strengths and weaknesses.
Current Ratio = current assets/current liabilities
Quick Ratio = cash/current liabilities
Debt to Asset Ratio = total debt/total assets
Debt to Equity = total debt/equity
Return on Assets = net income/total assets
Return on Equity = net income/equity
Price earnings = market price/earnings
While that reads as a list of formulas, it is lingual formulas. These concepts seem like another language and reading these sheets is similar to reading an essay in another language; however, if patiently observed and considered, with the right dictionary by your side they can be dissected in no time.
