Every public company publishes three core financial statements. Together, they tell you almost everything you need to know about a company's financial health. Understanding these three documents is the foundation of fundamental analysis.
The Three Financial Statements
1. Income Statement (Profit and Loss)
The income statement shows how much money the company made (or lost) over a period of time (usually a quarter or a year).
Key lines to read:
- Revenue (top line): Total sales
- Cost of goods sold: Direct costs of producing what was sold
- Gross profit: Revenue minus COGS
- Operating expenses: Rent, salaries, marketing, R&D
- Operating income: Gross profit minus operating expenses
- Net income (bottom line): The final profit after everything, including taxes and interest
What it tells you: Is the company growing? Is it profitable? Are margins improving or declining?
2. Balance Sheet
The balance sheet is a snapshot of the company's financial position at a single point in time.
Key lines to read:
- Assets: What the company owns (cash, inventory, property, patents)
- Liabilities: What the company owes (debt, accounts payable)
- Shareholders' equity: Assets minus liabilities
What it tells you: How financially stable is the company? Does it have more assets than debt? How much cash does it have?
3. Cash Flow Statement
The cash flow statement shows how cash actually moved in and out of the company.
Three sections:
- Operating cash flow: Cash from the core business operations
- Investing cash flow: Cash spent on or received from investments (buying equipment, selling assets)
- Financing cash flow: Cash from or paid to investors and lenders (issuing stock, paying dividends, borrowing)
What it tells you: Is the company generating real cash from its business? A company can report profit on the income statement but still be burning cash. The cash flow statement reveals the truth.
How They Connect
These three statements are interconnected:
- Net income from the income statement feeds into the cash flow statement
- Cash from the cash flow statement appears as an asset on the balance sheet
- Retained earnings on the balance sheet accumulate from net income over time
Where to Find Them
All three statements are included in a company's 10-K (annual) and 10-Q (quarterly) filings with the SEC. They are public, free, and available on SEC EDGAR.
The Progressive Trailblazer pulls financial data directly from SEC filings and presents it in plain English. Educational only. Not financial advice.