As an investor, a business owner, or a stakeholder, it’s crucial to know the right questions to ask to understand a company’s financial situation.
In this article, we’ll explore the essential questions you should ask when analyzing financial statements that will help you make informed decisions.
Table of Contents
About Profit or Loss
- What was the company’s net profit for the last quarter?
- How does the current profit compare to the profit from last year?
- What contributed to any increase or decrease in profit?
- Are the profits consistent over the past few quarters?
- What percentage of revenue turned into profit?
- Are there any unusual or one-time items affecting profit?
- What were the biggest expenses that affected profit?
- How much tax did the company pay?
- Is the company reinvesting its profits? If so, how?
- How much was spent on research and development?
- What is the company’s strategy to improve profits in the future?
- Is the gross profit margin improving or declining?
- What was the company’s operating profit margin?
- How does the company’s profit compare to its competitors?
- What is the earnings per share (EPS), and how has it changed over time?
About Revenue
- What is the total revenue for the latest quarter or year?
- How does this quarter’s revenue compare to the same quarter last year?
- What are the main sources of revenue for the company?
- Is the company’s revenue growing or shrinking?
- What percentage of revenue comes from new customers?
- How much revenue is coming from recurring or long-term contracts?
- What was the cost of goods sold, and how does it relate to revenue?
- Are there any seasonal trends that affect the company’s revenue?
- How much revenue is generated domestically versus internationally?
- Does the company rely heavily on a few key customers for its revenue?
- How is the company adapting to market changes to maintain or grow revenue?
- What impact do exchange rates have on revenue?
- How does the company’s revenue performance compare to industry benchmarks?
- Are there any new markets the company is planning to enter?
- What are the revenue forecasts for the next quarter or year?
About Expenses
- What are the company’s total operating expenses?
- How do the current expenses compare to the same period last year?
- What are the biggest expense categories?
- How much is spent on employee salaries and benefits?
- What are the utility costs, like electricity and water?
- How much is the company spending on insurance?
- Are there software and technology expenses going up or down?
- How much is spent on professional services, like lawyers or consultants?
- How much is spent on marketing campaigns?
- What are the interest expenses on loans or credit?
- Are there shipping and freight costs?
- What is the cost of customer acquisition?
- How much does the company spend on research and development?
- Are there any depreciation or amortization expenses?
- Is the company planning any major capital investments soon?
About Debt
- What is the total amount of the company’s debt?
- How has the debt level changed compared to the last reporting period?
- What kinds of debt does the company have (short-term, long-term, etc.)?
- What is the average interest rate on the company’s debt?
- Are there any upcoming debt payments or maturities?
- Does the company have enough cash to pay off its short-term debt?
- How does the company’s debt compare to its equity?
- Is the company taking on more debt to finance growth?
- What are the terms and conditions of the company’s loans?
- How does the company’s credit rating affect its debt?
- Is the company refinancing any of its existing debt?
- What percentage of revenue goes to servicing debt?
- What is the plan for paying off existing debt?
- How does the company’s debt level compare to competitors?
- Is the company’s debt strategy aligned with its overall financial goals?
About Cash Flow
- What is the net cash flow for the latest period?
- How much cash is coming from operating activities?
- How much cash is being used for investing activities?
- What’s the cash flow from financing activities?
- Is the company generating positive or negative cash flow?
- How do current cash levels compare to the previous year?
- Where is most of the company’s cash going?
- Are there any large, one-time transactions that affected cash flow?
- Is the company generating enough cash to cover its expenses?
- Does the company have a cash reserve for emergencies?
- How does the company manage its cash flow cycles?
- Are receivables being converted into cash in a timely manner?
- How quickly is inventory turning into cash?
- What was the cash flow per share?
- What is the free cash flow, and what does it signify?
About Assets
- What are the total assets of the company?
- How do the current assets compare to last year?
- What is the breakdown between current and non-current assets?
- How much cash and cash equivalents does the company have?
- What’s the value of the company’s inventory?
- How much is tied up in accounts receivable?
- Are there any intangible assets like patents or trademarks?
- What’s the value of the company’s real estate holdings?
- Does the company own any significant equipment or machinery?
- What kinds of investments does the company hold?
- Are there any impaired or depreciated assets?
- How quickly are assets being converted to cash?
- What percentage of assets are financed by debt?
- Does the company have enough liquid assets to cover short-term obligations?
- What are the key assets that generate revenue for the company?
About Liabilities
- What is the total amount of liabilities the company has?
- How do current liabilities compare to the previous year?
- What’s the breakdown between current and long-term liabilities?
- How much is owed to suppliers or vendors?
- Are there any outstanding loan payments?
- What are the deferred revenue amounts?
- Are there any accrued expenses like wages or taxes?
- Does the company have any pension or retirement obligations?
- Are there any outstanding legal liabilities or pending lawsuits?
- What are the lease liabilities?
- What is the total amount of credit debt?
- Is the company meeting its short-term debt obligations?
- What’s the company’s debt-to-equity ratio?
- How does the company plan to pay off its liabilities?
- Are there any off-balance-sheet liabilities?
About Future Projections
- What is the projected revenue for the next year?
- Are the future projections conservative or optimistic?
- What are the expected profit margins?
- Is the company planning any big investments?
- What’s the growth rate the company is aiming for?
- Are there plans to enter new markets?
- What are the projected operating expenses?
- How is the company planning to reduce debt?
- Are there plans to launch new products or services?
- What capital expenditures are forecasted?
- Are there any plans for mergers or acquisitions?
- How is the company planning to improve cash flow?
- What is the company’s strategy for risk management?
- Are there any planned changes to the pricing strategy?
- How is the company planning to adapt to regulatory changes?
About Ratios
- What is the company’s current ratio, and does it indicate good liquidity?
- What’s the quick ratio, and how does it differ from the current ratio?
- Is the debt-to-equity ratio rising or falling?
- What’s the return on equity (ROE) for the current period?
- How does the company’s price-to-earnings (P/E) ratio compare to its competitors?
- What’s the gross margin ratio, and what does it say about profitability?
- How is the asset turnover ratio trending?
- What’s the inventory turnover ratio, and is it improving?
- How does the company’s net profit margin compare to the industry average?
- What’s the return on assets (ROA), and is it going up or down?
- What is the interest coverage ratio?
- Is the company’s operating margin stable, improving, or declining?
- How does the company’s operating cash flow ratio look?
- How does the company’s price-to-book (P/B) ratio compare to its peers?
- How do the company’s ratios align with its long-term financial goals?
About Equity
- What’s the total shareholders’ equity?
- How has equity changed since the last financial period?
- What’s the retained earnings balance?
- Were there any stock splits or dividends recently?
- How many types of stock does the company have, like common or preferred?
- How many shares are currently outstanding?
- Is the company issuing new shares?
- What’s the book value per share?
- What’s the company’s dividend policy?
- Were there any equity investments from outside parties?
- Did the company repurchase any of its own shares?
- Are there any convertible securities affecting equity?
- What is the accumulated other comprehensive income?
- Is the company financed mostly by debt or equity?
- How does the company’s equity position compare to competitors?
Frequently Asked Questions
How does comparing a company’s financial statements with industry averages help?
Comparing with industry averages serves as a benchmarking tool, helping you to gauge a company’s performance relative to its peers. This comparison can highlight areas of strength, such as above-average profit margins or asset efficiency, and areas needing improvement. It also helps in understanding the competitive position and market standards, aiding in strategic decision-making.
Why are future projections important?
Future projections give you a glimpse of where the company thinks it’s headed. They show planned investments, expected revenue, and other key insights. But remember, they’re estimates, so always take them with a grain of salt.
Final Thoughts
Remember, beyond the jargon and figures lies a narrative about the company’s past, present, and its potential future. By asking insightful questions about financial statements, you not only become better informed but also empowered to make decisions with confidence.
