1. Income Statement (or Profit and Loss Statement) 📈
The Income Statement shows a company's financial performance over a specific period (e.g., a quarter or a year). It details the company's revenues and expenses to calculate its profit or loss.
Purpose: To assess a company's profitability—how much money it made or lost during the period.
Key Concept: Revenue - Expenses = Net Income (or the "bottom line").
2. Balance Sheet (or Statement of Financial Position) 🏛️
The Balance Sheet provides a snapshot of a company's financial standing at a specific point in time. It outlines what the company owns and what it owes.
Purpose: To assess a company's financial position by showing its resources (assets) and how those resources were funded (liabilities and equity).
Key Concept: The accounting equation must always balance: Assets = Liabilities + Shareholders' Equity.
3. Statement of Cash Flows (or Cash Flow Statement) 💸
The Statement of Cash Flows tracks the movement of cash both into and out of a business over a specific period. It is broken down into three main activities:
Purpose: To assess a company's liquidity and ability to generate cash to pay its debts and fund its operations and investments.
Key Sections:
Operating Activities: Cash flow from normal day-to-day business operations.
Investing Activities: Cash flow from buying or selling long-term assets (like property or equipment).
Financing Activities: Cash flow from debt, equity, and dividends.
These three statements are closely linked, with data from one statement flowing into the others to paint a complete financial picture.
