How to read the three financial statements

1. Finding them on SEC EDGAR

Search the company on EDGAR (sec.gov/edgar/search) and open a 10-K (annual) or 10-Q (quarterly).

In an annual report they sit under Item 8. Financial Statements and Supplementary Data; in a quarterly report, under Part I, Item 1. Financial Statements. The table of contents links straight there.

The three usually appear in this order — Consolidated Statements of Operations (income), Consolidated Balance Sheets, Consolidated Statements of Cash Flows. Names vary a little: Statements of Income, Statements of Financial Position.

The Notes below the tables run longer than the tables themselves. They state the basis on which each number was produced, so when a figure looks strange the answer is usually there.

2. Income statement — it whittles down from the top

Revenue sits at the top and costs come off line by line. Cost of sales leaves gross profit; R&D and SG&A leave operating income; interest and tax leave net income.

Where it whittles down says what kind of business it is. Two companies with the same revenue can lose most of it at cost of sales or most of it at SG&A, and that is a difference in structure.

⚠️ It covers a period. “Earned this much over three months” — not the state of anything on a given date.

3. Balance sheet — a photograph of one day

This one is a point in time: what the company holds and owes as of, say, December 31.

The left (assets) always equals the right (liabilities plus equity), because whatever the company holds was either borrowed or belongs to shareholders.

Assets are listed by how quickly they turn into cash — cash, receivables, inventory, then property and equipment. Liabilities follow when they come due (within a year, then after).

⚠️ Book values reflect what was paid at the time. Land bought decades ago sits at that price, and a brand the company built itself does not appear at all (only the premium paid to acquire another company shows up, as an intangible).

4. Cash flow statement — money that actually moved

Net income follows accounting rules, so it can differ from cash. Sell on credit and both revenue and profit are recorded while no cash has arrived. This statement bridges that gap.

It splits three ways — operating (OCF, cash from the core business), investing (equipment, acquisitions; CapEx lives here), and financing (borrowing, repaying, dividends, buybacks).

It opens with net income, adds back items where no cash moved (depreciation and the like), adjusts for working capital, and arrives at operating cash flow. The last line of the income statement is the first line of this one — which is where the three visibly connect.

Operating cash flow minus capital expenditure gives free cash flow, the money available for dividends, buybacks, and paying down debt.

5. Reading the three together

Net income ends the income statement, opens the cash flow statement, and adds to equity on the balance sheet (less whatever went out as dividends).

Cash is shown rising and falling through the year on the cash flow statement, and the resulting balance appears on the balance sheet.

Some companies post profits while cash shrinks. Check whether receivables or inventory grew on the balance sheet and the reason usually shows: sold but not yet paid, or stock piling up. The reverse happens too, where cash comes in well ahead of profit (often where depreciation is large).

⚠️ No single statement answers on its own. They explain each other — which is why the financials are split into three.

6. Reading them on Stocklore

Open a stock and the detail view lays out all three line by line, each with its amount, the change against last year, the XBRL tag the figure came from, and a link to the SEC source.

The income statement is also shown with revenue set to 100%, so each cost appears as a share of it — the “where it whittles down” above, at a glance.

The cash flow statement shows the three branches side by side and how much cash rose or fell as a result.

What to keep in mind

• Quarterly figures (10-Q) are unaudited. Only the annual report carries an audit opinion, and quarterly numbers are sometimes revised later.
• Line item names differ by company. The same thing is often labelled differently, so comparing two companies means looking at what a line contains, not what it is called.
• Companies based outside the US use a different basis. They file a 20-F under IFRS, and some report half-yearly or annually rather than quarterly.
• This page is information, not investment advice. Financial statements record a period that has passed; what comes next is not in them.