Understanding the Income Statement

• 1). Locate the financial statement of the particular bank you wish to investigate by searching online for it with a service such as MoneyCentral.MSN.com, using the bank's company name.
  
  
• 2). Look at the section of the financial statement titled "Income Statement." This statement should be broken down into both annual and quarterly assessments, and will outline the bank's income and expenses for each fiscal period. The numbers shown on the statement generally represent dollars in the millions.
  
  
• 3). Find the revenue section on the income statement. This section shows income earned from interest on loans and credit, the expenses of interest paid to accounts held by the bank, and non-interest income generated by the bank. The "Total Revenue" will be the interest income plus non-interest income minus the interest expenses.
  
  
• 4). Examine the figure titled "Income Before Tax." This number is calculated by taking the total revenue and subtracting from it the non-interest expenses, such as operating expenses, and loan-loss provisions or losses incurred from people defaulting on loans.
  
  
• 5). Deduct taxes from this number and factor in "Extraordinary Items" to see the net income or total profitability of the bank for the fiscal period. Generally a company that reports steady net profits over a number of fiscal periods is considered to be in good financial health.
  
  

Understanding the Balance Sheet

• 1). Find the section of the financial statement that shows the balance sheet. This sheet will display a breakdown of the company's total assets and liabilities, plus shareholder equity. The assets minus the combined sum of the liabilities and shareholder equity will always be zero.
  
  
• 2). Analyze the "Assets" section of the balance sheet. This will display all of the value of the bank that can be converted into cash within one year in the form of property, loans held, cash and other earning assets. These assets are organized according to their liquidity, with cash at the very top of the list.
  
  
• 3). Review the "Liabilities" portion of the balance sheet. Listed in this section are items that indicate the debt the bank holds and what it owes to outside sources, including deposits, accounts payable and both short- and long-term borrowings.
  
  
• 4). View the "Equity" section directly beneath the "Liabilities" portion. Here you will see the shareholders' equity broken down into common stock, preferred stock, other capital and retained earnings the company has not paid out in dividends. The line beneath this titled "Total Liabilities and Shareholders' Equity" should match the number under "Total Assets."
  
  

Understanding a Cash Flow Statement

• 1). Locate the cash flow statement. It should be broken down into three sections of "Cash from Operating Activities," "Cash from Investing Activities" and "Cash from Financing Activities." The cash flow statement is a summary of income and expenditures adjusted so that it only reflects changes in cash rather than credit and future expected revenue.
  
  
• 2). Survey the section entitled "Cash from Operating Activities." This summarizes the transfer of cash from the bank's basic services and operating costs. Starting with the net income, certain figures are added or subtracting depending on whether they have anything to do with the actual transfer of cash in the present. Assessments like depreciation of property are no longer factored out of income.
  
  
• 3). Examine the sections below titled "Cash from Investing Activities" and "Cash from Financing Activities." The former details cash transfers involved in receiving capital or spending it. The latter shows cash flow in terms of dividends, stock and debt. The total sum of these activities is displayed at the bottom and titled "Net Change in Cash."