Reading Financial Statements

How the Company Makes Money (Income Statement)

What the Company Owns and Owes (Balance Sheet)

If the income statement asks, "Is this a good business?", the balance sheet asks a much more critical question: How financially strong is this business right now?

Where the Cash Actually Goes (Cash Flow Statement)

If the Income Statement asks, "Is this a good business?" and the Balance Sheet asks, "Can it survive?" then the Cash Flow Statement asks the most uncomfortable question of all: Are the profits actually real?

What the Numbers Don’t Immediately Show

By the time most investors reach this stage, they have already done the heavy lifting. They have looked at the profit (Income Statement), checked the assets and liabilities (Balance Sheet), and measured the cash moving in and out (Cash Flow Statement). They have the "headline" numbers.