When considering any investment opportunity, you should perform due diligence not only on the deal being offered but the entity sponsoring the deal. An important aspect of that is to examine the entity’s financial records.
Two of the main ones are:
- Balance sheet — This is an accounting of the entity’s financial condition at a specific point in time (for example, as of June 30).
- Income statement — Sometimes called a profit-and-loss statement, this reflects the entity’s financial performance over a specific period of time (for example, annually, over a quarter, or for a given month).
On its website, the SEC provides an informational sheet for each, providing a basic understanding of why they are important and explaining the line items in detail. These are part of the SEC’s suite of “Capital Raising Building Blocks,” one-pagers that break down these fundamental capital-raising concepts into plain language.
“Understanding a business’s financial statements is critical for investors and business owners alike,” Stacey Bowers, director of the SEC’s Office of the Advocate for Small Business Capital Formation. “These new resources aim to provide accessible tools to help small businesses and investors navigate the complexities of funding a small business.”
Click here to access the one-pager explaining “What is a balance sheet?”
Click here to access the one-pager explaining “What is an income statement?”
