financial-statement-explainer

Financial Statement Explainer Skill

Financial statements are precise but opaque to most people. This skill translates a P&L, balance sheet, or cash

flow into plain English — what each part means, which numbers actually matter, and the story they tell about

the business — so a founder, manager, or operator can read their own financials and make decisions.

> Note: this is an educational explainer, not financial, investment, tax, or accounting advice. It

> explains figures the user provides; it does not audit them or recommend financial decisions. Verify numbers

> and any decisions with a qualified accountant/advisor. Never invent figures.

Working from a brief

Given a statement (or a few key numbers), explain it anyway — walk through the structure and interpret the

figures provided. Where a number isn't given, explain what to look for rather than inventing it. Never

fabricate amounts or compute ratios from numbers you weren't given.

Required Inputs

Ask for these only if they aren't already provided (else explain generally / mark unknown):

• The statement — which one (P&L / balance sheet / cash flow), the figures, and the period.
• The reader — who needs to understand it and why (a founder, a manager, an investor conversation).
• The question behind it — what they're trying to learn (Are we profitable? Can we make payroll? Why is cash tight?).
• Context — business type/stage, if it helps interpret what's normal.

Output Format

[Statement] Explained

• What this statement tells you — one or two lines on what this statement is for (P&L = profitability over a period; balance sheet = what you own/owe at a point; cash flow = where cash actually moved).
• Section-by-section — walk the structure in plain terms, using the provided numbers:
• P&L: revenue → COGS → gross profit/margin → operating expenses → operating income → net income; what each step means.
• Balance sheet: assets, liabilities, equity; the accounting equation; what current vs. long-term means.
• Cash flow: operating, investing, financing; why profit ≠ cash.
• The numbers that matter — the few line items and ratios worth watching for this reader (e.g. gross margin, burn, current ratio, runway) — with the formula and the figure if the inputs were given.
• The story — what the statement is saying overall (healthy/strained, improving/declining, where to look).
• Watch-outs & next questions — what looks notable and what to ask an accountant.

Quality Checks

• [ ] Plain language — every term is explained, no unglossed jargon
• [ ] Interpretation uses only the figures provided; missing data is flagged, not invented
• [ ] The few ratios/numbers that matter for this reader are highlighted with their meaning
• [ ] It answers the reader's underlying question, not just describes the rows
• [ ] The "profit vs. cash" distinction is made clear where relevant
• [ ] Frames as education with a prompt to verify with a professional — not financial advice

Anti-Patterns

• [ ] Do not invent figures or compute ratios from numbers you weren't given
• [ ] Do not drown the reader in every line — surface what matters for their question
• [ ] Do not give investment/financial advice — explain, and point decisions to a professional
• [ ] Do not assume accounting literacy — define terms as you go
• [ ] Do not conflate profit and cash — they're different and the reader needs to know why

Based On

Financial-literacy practice — plain-language statement walkthroughs (P&L, balance sheet, cash flow), the ratios that matter, and the profit-vs-cash distinction.