Each year, we visit the accountant to review our corporate financial statements. This complex document often leaves us puzzled. However, grasping it is crucial for business growth and value. Here’s a concise guide:

The Balance Sheet:

• Depicts your business’s financial status, balancing assets, liabilities, and equity.
• Assets: Current (e.g., bank accounts, receivables), Long Term Investments, Property & Equipment, Corporate-owned investments.
• Liabilities: Debts owed (e.g., loans, taxes & other payables).
• Shareholder’s Equity: Share capital (usually nominal) and retained earnings (the cumulative profit or deficit left in the business).

The Income Statement:

• Shows active business revenue, deducts cost of goods, yielding Gross Profit.
• Lists operating expenses including Amortization & Depreciation, followed by “Earnings from Operations.”
• “Other Income” represents passive income including investment and rental revenue.
• Results in “Earnings before Income Taxes,” then “Income Taxes,” yielding “Net Earnings” or “Net Income.”

Dividends:

• Dividends deducted from net income after taxes, impacting retained earnings.

Notes to Financials:

• Provide details on balance sheet and income statement items, including equipment depreciation.
• Important for asset valuation and selling your practice.

Bottom Line

Corporate financials illustrate an instant in time of your ongoing business.