How to Read Financial Statements

Every public company releases three financial statements each quarter, answering three different questions about the same business.

The Income Statement asks: "Did the company make money this period?" It kicks off with revenue (total sales), then subtracts costs and expenses. The result is net income, which shows profit or loss over a specific time, like a quarter or a year.

The Balance Sheet asks: "What does the company own and owe right now?" Unlike the income statement, which covers a period, this is a snapshot at a single moment. Total assets (cash, inventory, buildings, equipment) must equal total liabilities (debts owed) plus shareholders' equity (what's left for the owners).

The Cash Flow Statement asks: "Where did the actual cash come from and go?" This is important. A company might report a profit on the income statement but still have cash issues if much of its "revenue" comes from sales on credit that customers haven’t paid yet.

Reading all three together gives you the full picture. You might find a company that is profitable and cash-healthy, or profitable but cash-strapped, or unprofitable but cash-rich from a recent fundraise. Each statement alone can hide very different stories.