How executives should read financial statements
The three statements, and the five questions that matter in a board meeting.
By Amr Adel
The three statements, and the five questions that matter in a board meeting.
Most executives receive a monthly pack of fifty pages and read three numbers: revenue, net profit and the bank balance. Those numbers matter, but on their own they hide the questions a board should be asking.
Three statements, one story
The income statement shows whether the business earned more than it spent in the period. The balance sheet shows what the company owns and owes at a single date. The cash-flow statement explains how the cash balance moved between two dates. Read together, they tell one story; read separately, each can mislead.
Five questions for the next board meeting
- Is profit turning into cash, or building up in receivables and stock?
- How much of this year’s profit came from one-off items?
- Can current assets cover the debts that fall due within twelve months?
- Which costs grew faster than revenue, and why?
- What would a three-month delay in collections do to the bank balance?
What a good pack looks like
A useful board pack opens with one page: the five or six figures that drive the business, against budget and last year, each with a one-line explanation. The detailed statements follow for those who need them.
If a number cannot change a decision, it does not belong on the first page.
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