Read the income statement, balance sheet, cash-flow statement, statement of shareholders’ equity, and the notes. Trace revenue, cost, cash conversion, financing, reinvestment, and ownership changes before opening a valuation model.
OVERVIEW · STOP 02 OF 1212 MINCHECKED 2026-07-31
Financial statements
How to read the income statement, balance sheet and cash flow statement, and what the notes add.
DID THIS LAND?
STATEMENT WALKTHROUGH
Sells goods for $100 on credit. They cost $60 from inventory.
Profit arrives now; cash waits for the customer. Only the tax is paid.
| Revenue | +$100 |
|---|---|
| Cost of goods sold | +$60 |
| Depreciation | — |
| Pre-tax profit | +$40 |
| Tax (assumed 25%) | +$10 |
| Net income | +$30 |
| Cash | −$10 |
|---|---|
| Receivables | +$100 |
| Inventory | −$60 |
| PP&E | — |
| Payables | — |
| Deferred revenue | — |
| Debt | — |
| Retained earnings | +$30 |
| Operating | −$10 |
|---|---|
| Investing | — |
| Financing | — |
- Assets +$30 = liabilities + equity +$30
- Cash −$10 = operating + investing + financing −$10
Accrual accounting, an assumed 25% tax rate paid in the same period, amounts in dollars. A practice run: nothing here is saved.
ACTION — complete the statement walkthrough, then continue to Financial Statement Analysis.
CONTINUE TO FINANCIAL STATEMENT ANALYSIS →CHECK YOUR UNDERSTANDING
A company reports higher net income, but cash from operations falls. Is that automatically bad?
SOURCES
- 01U.S. Securities and Exchange Commission — Beginners' Guide to Financial Statements CHECKED 2026-07-31
- 02U.S. Securities and Exchange Commission — How to Read a 10-K/10-Q CHECKED 2026-07-31