---
title: Understanding Financial Statements for the Non-Accountant
description: Review the three core financial statements, their importance, and key metrics used to evaluate a business.
---

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# [Understanding Financial Statements for the Non-Accountant](https://blog.becpas.com/understanding-financial-statements-for-the-non-accountant)

 Written by [Brown Edwards](https://blog.becpas.com/author/brown-edwards) | Dec 28, 2021 1:00:00 PM

# Brown Edwards Director Zach Webber reviews the three core financial statements – the balance sheet, income statement, and statement of cash flows. He also covers their importance, key metrics and explains how they help to evaluate a business and answer some key questions, such as, “Is this company successful?” “Are we making money?” and “Where did the money go?”

## The Balance Sheet

A balance sheet is an overview of a company’s finances at a specific point in time. It is commonly prepared at month-end or year-end and reports a company’s assets, liabilities, and equity.

### 3 Key Metrics to Analyze

1. **Working capital** – This shows the strength of the company and its ability to meet its obligations as they become due. The larger the number, the better.
2. **Loans to shareholders/owners** – This can give us an idea if owners are pulling money from the company for personal use.
3. **Overbillings and Underbillings – **This tells us generally how contracts are performing and gives us an idea of management’s ability to estimate costs and bill in advance.

## Income Statement

An income statement, also known as the profit and loss statement, provides valuable insights into a company’s operations, profitability, and efficiency.

### 3 Key Metrics to Analyze

1. **Gross profit margin on contracts** – This tells us how much money a contractor is making on its contracts. We want to make sure the margins are large enough to support overhead expenses.
2. **Operating expense as a percentage of revenue** – This tells us how management is able to control overhead costs in a way to maintain overall profit.
3. **Other income** – This is where we are looking for anything extraordinary that may not be recurring.

## Statement of Cash Flow

A cash flow statement provides information about how the company is using and obtaining cash.

### 3 Key Metrics to Analyze

1. **Cash Flow from Operations - **Is the company generating cash from its core operations?
2. **Cash Flows from Investing – ** This tells us information about how the company is investing in its business for the long-term or liquidating assets to support current operations.
3. **Cash Flows from Financing - **This provides insights as to whether the company is making debt payments and/or receiving funds from banks or owners to support operations.

These three core financial statements can reveal valuable information about a company. It is important to understand what the information means and how to interpret it in a meaningful way to help with the evaluation of a business.

If you or someone at your company could benefit from a deeper understanding of these statements, feel free to reach out to Zach or your dedicated Brown Edwards team member.

Watch Zach's full presentation on the Brown Edwards YouTube Channel.

[View full post](https://blog.becpas.com/understanding-financial-statements-for-the-non-accountant)

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