Financial Accounting of Companies

Public companies are required to publish financial data quarterly or yearly according to formal standards like GAAP or IFRS. These financial reports consist of three major parts (German terms in ()):

• Income statement (Gewinn- und Verlustrechnung GuV)
• Balance sheet (Bilanz)
• Cashflow statement (Kapitalflussrechnung)

Additionally, the management describes their view on the current business situation and may give some near-term future perspective. 

Income Statement

This statement shows how much the company earned over the reporting period from all products and services which the company provides. The result is calculated in four steps:

Gross Profit (Bruttoergebnis) = Revenue from Sales (Umsatzerlöse) - Cost of Goods Sold (Herstellungskosten/Wareneinsatz) 

Total Expenses from Operations OpEx (Betriebsausgaben) = Research & Development Costs (Entwicklungskosten) + Sales & General Costs (Vertriebs- und Gemeinkosten) + Depreciation & Amortization of Machines and other Assets (Abschreibungen)

Earnings before Interest and Taxes EBIT ^*1 = Gross Profit - Total Expenses from Operations OpEx

Net Income = EBIT - Interest on Debt (Financing costs) - Taxes

^*1 Sometimes also Earnings before Interest, Taxes, Depreciation and Amortization EBITDA may be calculated

Obviously, higher is better. However, startup companies may have long periods with negative income if enough financing is available by investors, before they finally turn profitable or go bankrupt.

Balance Sheet

While the income statement shows if the company earned money over the reported time period, the balance sheet shows how valuable the company is. It lists all assets vs. all liabilities of the company:

to be continued

Cashflow Statement

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