If you're thinking of investing some of your hard-earned money into a company, it is very important to know what that company is worth. There is absolutely no point in investing in a company which is worth very little and might not have much longer left in the market. You want to find a company with a reputation and a future. There are three things you can do to figure out the worth of a company:
1. Study the Income Statement

2. Study the Balance Sheet
3. Study the Cash Flow Statement
The Income Statement When you look at this statement you will notice a relatively simple outline of revenue subtract expenses equal profit. Unfortunately, profit means different things to different companies.
• Net Income – The amount after costs have been subtracted.
• Operating Profit – The amount made after paying day-to-day costs.
• Diluted Earnings per Share – Adjusted net income is divided between the numbers of shares held by investors (the more shares there are, the less money each share holder gets).
• Basic Earnings per Share – Net income divided by shares held by investors.
• Performa Earnings per Share – Companies can leave out expenses incurred by a big event so that investor still gains. The process is easily abused.
The Balance Sheet This document indicates what is owned by the company and what is owed. It reflects:
• Assets – Items of value owned by the company (land, buildings, cars and machinery).
• Liabilities – The money which the company still needs to pay out (bank loans, taxes etc.)
• Shareholder's Equity – The ownership of the company held by investors.
The amount of shares which are owned by investors (outstanding shares) indicates how many sections the profit will be split into. Remember: the higher that number, the lower the amount paid to each investor.
The Cash Flow Statement This shows the amount of money coming in and going out of the business and is not to be ignored. It is divided into three parts:
• Money from operating activities – The amount of money made from normal business, this is where back expenses are added as well as wear and tear costs.
• Money from investing activities – The amount invested on new assets. It also shows the amount earned from selling assets.
By taking a careful look at these three documents, the worth of any company can be seen.