How to Read Your Financials Like a CFO
How to Read Your Financials Like a CFO
Most founders don’t struggle because they’re “bad with numbers.” They struggle because no one has ever taught them how to read the numbers.
The three core financial statements—Income Statement, Balance Sheet, and Cash Flow Statement—are designed to tell the story of a business. A CFO doesn’t read them as separate documents. A CFO reads them as one connected system.
Here’s how to read your financials the same way.
1) The Income Statement (P&L)
Purpose: Shows whether the business model works.
Core question: “Did we make money?”
What it includes:
Revenue
COGS (direct delivery costs)
Gross Profit
Operating Expenses (tools, salaries, rent, marketing)
Net Income
How a CFO reads it:
A. Trends, not single months
One month is noisy. A 6–12 month trend shows what’s real.
B. Gross margin before revenue
Revenue shows how loud the engine is. Margin shows whether the engine is efficient. Weak margin means growth can burn cash. Strong margin makes scale easier.
C. Expense behavior
Expenses should scale slower than revenue. If OpEx rises at the same pace as revenue, there’s no leverage. If it rises faster, the business is overextended.
D. Net income as a signal
Negative net income doesn’t always mean a bad business. Positive net income doesn’t always mean a healthy one. The insight comes from why.
2) The Balance Sheet
Purpose: Shows the financial position of the business.
Core question: “What do we own, what do we owe, and what’s left over?”
What it includes:
Assets (cash, inventory, receivables, equipment)
Liabilities (credit cards, loans, payroll, bills due)
Equity (net worth)
How a CFO reads it:
A. Cash first
Cash is the oxygen of the business. Strong cash creates flexibility. Weak cash creates urgency.
B. Accounts receivable tells the real revenue story
If revenue is up but receivables keep climbing, collections are lagging. That isn’t cash revenue yet—it’s IOUs.
C. Debt reveals leverage and risk
Debt isn’t inherently bad. Mismanaged debt is. CFOs review schedules, interest cost, debt-to-cash, and short- vs long-term obligations.
D. Equity shows long-term health
Equity grows when operations produce profit, debt is paid down, and assets increase. Declining equity often signals the business is draining itself.
3) The Cash Flow Statement
Purpose: Shows how money actually moves (not how profit appears on paper).
Core question: “Where did the money go?”
Three types of cash flow:
A. Operating Cash Flow — cash produced by the core business
Positive means the business funds itself. Negative means it needs fuel.
B. Investing Cash Flow — spending on long-term assets
Often negative during growth. Not automatically bad.
C. Financing Cash Flow — loans, credit lines, owner injections
Positive means capital came in. Negative means debt was repaid or cash was distributed.
How a CFO reads it:
Profit vs. cash alignment
If profit is positive but cash is negative, investigate working capital (receivables, inventory, payables) and timing.
Whether operations fund the business
A business that depends on financing to survive is fragile.
Timing and operational reality
Cash flow exposes slow collections, lumpy expenses, inventory problems, and hidden overspending.
The CFO Way (what most founders miss)
A CFO doesn’t read statements in isolation—they read them together.
Example
P&L shows profit
Balance sheet shows receivables rising
Cash flow shows cash declining
CFO conclusion: profit exists on paper, but collections are failing and cash is tightening.
Financial statements don’t give answers in isolation. They give answers in alignment.
Why this matters
When leadership can read financials like a CFO, decisions get faster and cleaner: clearer strategy, tighter cash control, and earlier warning signals.
Financial statements aren’t reports. They’re decision tools. When the language becomes familiar, finance stops feeling mysterious—and starts producing calm, disciplined execution.
Virginia Sky Advisory publishes practical guidance to improve financial clarity, operating discipline, and executive decision-making. When leadership can read the numbers correctly, decisions get faster and cleaner.
