The income statement
The income statement shows what a company earned and spent over a period (quarter or year). It flows from down to : Revenue → Gross Profit (after cost of goods sold) → Operating Income (after operating expenses) → Net Income (after taxes and interest). and reveal profitability at each stage.
Revenue is what you make. Net income is what you keep.
The balance sheet
The balance sheet is a snapshot of what a company owns () and owes (liabilities) at a single point in time. Subtracting liabilities from assets gives shareholders' — the of the company. Key ratios like are calculated directly from the balance sheet.
Cash flow statement
A company can be profitable on paper but still run out of cash. The statement shows the real money moving in and out: operating cash flow (from core business), investing cash flow (capex, acquisitions), and financing cash flow (debt, buybacks, ). Free cash flow = operating cash flow minus capital expenditures.
Free cash flow is often called the "true" measure of a company's earnings power.
Red flags to watch
Rising alongside falling margins signals pricing pressure. Profitable companies burning cash often rely on one-time items. rising faster than revenue growth can signal risk. Always compare three to five years of statements, not just one quarter.