Using Financial Statements to Measure Financial Health

...they tell three different but related stories about how well your company is doing financially.


The three financial statements offer three different perspectives on your companies financial performance. That is, they tell three different but related stories about how well your company is doing financially.

• The income statement shows the bottom line: it indicates how much profit or loss a company generates over a period of time.
• The balance sheet shows a company's financial position at a specific point in time. That is, it gives a snapshot of the company's financial situation--its assets, liabilities, and equity--on a given day
• The cash flow statement tells where the company's cash comes form and where it goes--in other words, the flow of cash in, through, and out of the company.

Another way to understand the interrelationships is as follows:

• The income statement tells you whether your company is making a profit
• The balance sheet tells you how efficiently the company is utilizing its assets and how well it is managing its liabilities in pursuit of profits.
• The cash flow statement tells you whether the company is turning profits into cash.

ACTION POINT: Understand your companies health through the lens of the three key financial statements.