We’ve probably all heard about financial statements, but have you ever really sat down and taken a close look at one? If you haven’t, then you should! The reason is that financial statements are how the leadership that runs your company talks about how the company is doing. If you want to speak their language, then we’d better take a look at what you’re going to have to learn…
Why Do Financial Statements Matter?
I can almost see you saying to yourself, why should I care about my company’s financial statements. I mean, you’ve seen those statements before and they pretty much look like they are written in Greek. Why bother?
The answer is that your career depends on it. The ability to both read a financial statement and to understand what it is saying to you has become a critical IT manager skill ever since decision making authority started getting pushed down the line a few years ago. Your management wants you to know about this stuff and your IT team needs you to know about this stuff.
By reading your company’s financial statements you’ll be able to determine what the company owns, what it owes to other firms, where its money comes from and where it spends it, how much profit the firm is making, and what kind of financial health the company is in. Ultimately, financial statements form the vocabulary that the people running the company use to talk about the company – sounds like that is a good language for you to know.
The 3 Types Of Financial Statements
In the U.S., the Securities and Exchange Commission requires publicly traded companies to create and file 3 different financial documents. on a regular basis. Privately traded firms don’t have to file these same documents, but more often than not their investors require that the documents be created so that they can determine the health of the company.
The three types of financial documents that firms use to report on the state of their business are: the balance sheet, the income statement, and the cash flow statement. These three documents are used by multiple parties (managers, shareholders, and outside investors) to determine the state of the business.
No matter what type of company you work for, the firm’s 3 types of financial documents are always going to follow the same general format. There will be differences in the specific line items that your firm reports, but overall the 3 statements will be similar enough to the ones produced by other firms so that you can compare companies.
What Does All Of This Mean For You?
As an IT manager, you’ve probably gotten this far in your career based on your technical knowledge. Congratulations. Now it’s time to move on. These statements hold the key to understanding where the company has been and where it is going. This is information that you’re going to have to be able to understand in order to properly manage your IT dream team.
The reason that these statements are so important is because the need to be able to read and understand a financial statement has become very important as organizations have pushed decision making authority farther down. You’ll need to be able to understand the three types of statements: the balance sheet, the income sheet, and the cash-flow sheet.