Financial statements tell the true story of a company. Learning to read them gives you an edge over 90% of retail investors.
The Income Statement
Revenue, costs, and profit explained.
Shows profitability over a period. Key lines: Revenue, Cost of Goods Sold, Gross Profit, Operating Expenses, Operating Income, Net Income. Look for growing revenue, expanding margins, consistent profitability.
The Balance Sheet
Assets, liabilities, and equity.
Shows financial health at a point in time. Assets = Liabilities + Equity. Key ratios: Current ratio above 1.5 is healthy. Debt-to-equity below 1 is conservative.
The Cash Flow Statement
Where the money actually goes.
Cash flow is the truest measure of financial health. Three sections: Operating, Investing, Financing. Free Cash Flow = Operating minus Capital Expenditures. This is what is available to shareholders.