Financial Statements

The Three Key Statements

Publicly traded companies are required to regularly issue financial statements to provide transparency to investors and regulators. Understanding how to read these documents is a critical skill for any investor. The three main statements are the balance sheet, the income statement, and the cash flow statement.

The Income Statement

The income statement, also known as the profit and loss (P&L) statement, shows a company's financial performance over a specific period (e.g., a quarter or a year). It starts with the company's revenue and subtracts various costs and expenses to arrive at the net income, or "bottom line."

The Balance Sheet

The balance sheet provides a snapshot of a company's financial position at a single point in time. It follows the fundamental accounting equation: Assets = Liabilities + Shareholders' Equity. It shows what a company owns (assets) and what it owes (liabilities).

The Cash Flow Statement

The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. It is broken down into three activities: operating, investing, and financing.