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If you have been in the construction business awhile, you’re likely familiar with most of the key words on your financial statement. Nonetheless, it does not hurt to review these terms and think about how they currently apply to your company. Here’s a handy financial statement glossary:
Balance sheet. This provides a snapshot of a company’s assets and liabilities. Assets are items of value, including cash, accounts receivable, equipment and intellectual property. Liabilities are debts such as accounts payable, payroll and lines of credit. The balance sheet also states the company’s net worth, which is calculated by subtracting total liabilities from total assets.
Cash flow statement. This shows how much cash a company generates for a particular period, which is a good indicator of how easily it can pay its bills. The statement details the net increase or decrease in cash as a result of operations; investment activities, such as property or equipment sales or purchases; and financing activities, such as taking out or repaying a loan.
Income statement. Also known as a profit and loss statement, the income statement shows revenues and expenses for a specified period. Its goal is to depict which parts of the business are profitable, so it matches revenues and expenses carefully for specific projects.
Retained earnings/equity statement. This statement shows how much a company’s net worth grew during a specified period. If the business is a corporation, the statement details what percentage of profits for that period the company distributed as dividends to its shareholders and what percentage it retained internally.