How to Read Financial Statements

Every public company reports three financial statements each quarter, and together they answer three different questions about the same business.

The Income Statement answers: "Did the company make money this period?" It starts with revenue (total sales), subtracts costs and expenses, and arrives at net income — the bottom-line profit or loss over a specific stretch of time, like a quarter or a year.

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

The Cash Flow Statement answers: "Where did the actual cash come from and go?" This matters because a company can report a profit on the income statement while still running low on real cash — for example, if a lot of its "revenue" is sales made on credit that customers haven't paid yet.

Reading all three together, instead of just one, is what lets you see the full picture: profitable AND cash-healthy, profitable but cash-strapped, unprofitable but cash-rich from a recent fundraise, and so on — very different stories that a single statement alone can hide.