Financial Statements: The Three Lenses on a Company

Concept

Financial statements are standardized reports that quantify a company's economic activity. There are three core statements: the Income Statement (profitability over a period), the Balance Sheet (financial position at a point in time), and the Cash Flow Statement (actual cash movements over a period). Together, they answer: Did we make money? What do we own and owe? Where did the cash actually go?

Intuition

Think of a company like a household:

• Income Statement: Your paycheck minus rent, groceries, and utilities. Did you profit this month?
• Balance Sheet: Your net worth right now—house value, car, savings account minus mortgage and credit card debt.
• Cash Flow Statement: Your actual bank statement. You might have "made money" on paper (your house appreciated), but did your checking account actually go up?

Profitability (income statement) doesn't mean liquidity (cash flow). A company can show profit while running out of cash—this kills businesses. The three statements together reveal the full picture.

Golden rule: Start at the top of the Income Statement (IS), work down. Move to the Cash Flow Statement (CFS), then the Balance Sheet (BS). Visualize: Balance Sheet (left), Income Statement (middle), Cash Flow Statement (right). This mental map provides a consistent checklist for any question.

Components

Interview Script

Financial statements are three standardized reports that together reveal a company's complete financial picture. The Income Statement shows profitability over a period, the Balance Sheet shows what you own versus owe at a point in time, and the Cash Flow Statement tracks actual cash movements—which is critical because a company can show accounting profit while running out of cash, and that mismatch kills businesses.