The Three Financial Statements

Introduction

Fundamental analysis starts with the numbers a company publishes. The three core financial statements tell the full story: the income statement, the balance sheet, and the cash flow statement. This lesson introduces all three.

The Three Statements

1. Income statement — profitability over a period 2. Balance sheet — assets, liabilities and equity at a point in time 3. Cash flow statement — actual cash moving in and out

Together they answer: how profitable is it, how solid is it, and does it generate real cash?

The Income Statement

Shows revenue, costs, and profit over a period (quarter or year):

Revenue
 - Cost of goods sold      = Gross profit
 - Operating expenses      = Operating profit
 - Interest and tax        = Net income

The Balance Sheet

A snapshot of financial position at one date:

Assets = Liabilities + Equity

• Assets — what the company owns
• Liabilities — what it owes
• Equity — owners' stake (what's left)

The Cash Flow Statement

Shows actual cash movements, split into three parts:

• Operating — cash from core business
• Investing — cash from buying/selling assets
• Financing — cash from debt, equity, dividends

Why You Need All Three

• Profit doesn't always equal cash (timing, non-cash items)
• A profitable company can still run out of cash
• The balance sheet shows whether a company can survive hard times

Summary

• Income statement = profitability
• Balance sheet = financial position (Assets = Liabilities + Equity)
• Cash flow statement = real cash movement
• Profit can differ from cash; all three are needed
• Combine them for a complete financial picture

Next Lesson

Let's read the income statement in detail.