Introduction to Financial Statements
Understanding Business Financial Health
To understand a company’s financial position—both on its own and within its industry—you need to review and analyze several financial statements: balance sheets, income statements, cash flow statements, and annual reports. The value of these documents lies in the story they tell when reviewed together.
Financial statements offer a window into the health of a company, which can be difficult to gauge using other means. As future translation and localization professionals, you’ll work with international businesses whose financial documents you may need to translate or whose financial health you’ll need to understand.
Source: Content adapted from How to Read Financial Statements: A Beginner’s Guide by Tim Stobierski, Harvard Business School Online
The Four Key Financial Documents
1. Balance Sheet
A balance sheet conveys the “book value” of a company. It allows you to see what resources it has available and how they were financed as of a specific date. It shows its assets, liabilities, and owners’ equity (essentially, what it owes, owns, and the amount invested by shareholders).
Key characteristics:
- Provides a “snapshot” at a specific point in time
- Shows what the company owns (assets) and owes (liabilities)
- Uses the fundamental equation: Assets = Liabilities + Owners’ Equity
2. Income Statement
An income statement, also known as a profit and loss (P&L) statement, summarizes the cumulative impact of revenue, gain, expense, and loss transactions for a given period. The document is often shared as part of quarterly and annual reports, and shows financial trends, business activities (revenue and expenses), and comparisons over set periods.
Key characteristics:
- Shows performance over a period of time
- Reveals whether a company is profitable
- Includes revenue, expenses, and net income
3. Cash Flow Statement
The purpose of a cash flow statement is to provide a detailed picture of what happened to a business’s cash during a specified duration of time, known as the accounting period. It demonstrates an organization’s ability to operate in the short and long term, based on how much cash is flowing into and out of it.
Key characteristics:
- Focuses on actual cash movement (not just promises to pay)
- Divided into three sections: operating, investing, and financing activities
- Important for understanding liquidity
4. Annual Reports
An annual report is a publication that public corporations are required to publish annually to shareholders to describe their operational and financial conditions. Annual reports often incorporate editorial and storytelling in the form of images, infographics, and a letter from the CEO to describe corporate activities, benchmarks, and achievements.
Key characteristics:
- Combines financial data with narrative storytelling
- Includes management’s vision and strategy
- Provides industry context and future outlook
Our Focus This Week
In this course, we will concentrate on balance sheets and income statements as these two documents provide the foundation for understanding business financial health. They contain the most essential vocabulary and concepts you’ll encounter in professional business communication.
Why these two?
- They form the core of most business financial discussions
- They provide complementary views: balance sheet (snapshot) + income statement (performance over time)
- They contain the terminology most frequently used in business translations
Going Further
While we focus on balance sheets and income statements, you can extend your learning by exploring:
- Cash flow statements - Essential for understanding actual money movement and liquidity
- Annual reports - Valuable for seeing how companies communicate financial information to stakeholders in narrative form
- Financial ratios and analysis - Tools for comparing companies and assessing financial health
These additional areas represent natural next steps for developing advanced business English skills in financial contexts.
Real-World Application
Throughout this week, we’ll use real company examples to see how these concepts apply in practice. You’ll analyze actual financial information and build vocabulary that you’ll encounter in professional translation and business contexts.
📥 Download this Content
Find this file on our repo and download it.
🤖 GAI Study Prompts
Copy the downloaded content and try it with these prompts:
- “Explain the difference between balance sheets and income statements in simple terms”
- “What types of business decisions would require understanding financial statements?”
- “Create a scenario where a translation professional needs to understand these documents”
- “How do financial statements ‘tell a story’ about a company?”
Next Activity: Financial Terminology Review