When we are looking at financials of a company, we need to look at them like an underwriter who is making sure that money will not be lost on a loan to the company. An underwriter is looking for risk. Risk that the company will not be able to repay.
An underwriter knows their stuff. They know what an income statement, balance sheet, or cash flow statement is. They know when a company has too little cash or too much debt. They know whether the company will generally have a better year in future years as they did this year. They know all of this by looking at the financials of a company.
The financials that you can look at will often have terms that you don’t understand. Like the current ratio. Price to earnings ratio. Things like that. Where do you turn when you need to know more about a financial term, how it’s used, or what it’s definition is? Well, Google of course. You could also use a website like Investopedia. In fact, Google will often refer you to Investopedia.
Let’s take the current ratio for example: Google it. You will see all kinds of websites that talk about the current ratio. You are likely to get somewhat different definitions and opinions on using it. That’s ok. At the end of the day, it is your perception of it that really matter. And that starts by checking out what others have written about it.
Any financial term can be Google’d. Give it a try.
By the way, if you feel like it’s all over your head, hang in there. In time, it will all come together.