As students progress through their academic careers, they will begin to learn the importance of budgeting, saving, and managing finances. An integral part of this learning process is understanding how to read and analyze financial records. Here are some activities that can help students better understand how to read these documents.

Personal Budgeting Exercise

Students can begin the exercise by understanding their monthly income, which can be either a part-time job, an allowance, or a stipend. The students then need to create a monthly budget sheet, listing all their necessary expenses, such as rent, phone, electricity, and car payments. After gathering this data, students can forecast the monthly expenses based on the current financial situation, and explore ways to improve their financial situation.

Reading an Income Statement

Students can learn how to analyze and interpret company financial reports to help them understand changes in a business’s profitability. Start by reviewing an income statement and teach them to understand the components: revenue, expenses, and net income or loss. This activity will help students learn key financial ratios, such as the gross profit and net profit margins.

Understanding a Balance Sheet

Similar to an income statement, a balance sheet is another type of financial statement a company prepares. As with the income sheet, students must understand how to read the various components of a balance sheet, such as cash, accounts receivable, inventory, accounts payable, and long-term liabilities such as loans. Students learn to use the data to compute financial ratios like the current ratio and operating cash flow ratio.

Analyzing Stock Price Performance

Stock price investing is a way of investing money in the stock market, and it’s an excellent way to understand the power of investing and how a company’s operations are reflected in its stock price performance. Students can observe how a company’s sales, operating profit, earnings growth, or other key financial ratios might impact its stock price over time.

Comparing Financial Statements

Comparing financial statements of different companies in the same industry is a great way to see the differences in operations, revenue, and expenses. It also gives an opportunity to examine key performance indicators and financial ratios like gross profit, net income, etc. Additionally, students can explore financial and accounting methods used by various companies, which can be helpful to them for decision-making.

Final Thoughts

Reading financial records can seem intimidating, but it’s an essential skill that will be especially beneficial for students entering the workforce or starting their own businesses. It’s important to encourage students to approach the activity with curiosity and eagerness to learn. With these few activities, students will come out with a solid understanding of the value of financial record keeping and the tools to interpret any financial statements that might come their way.