A company’s share price tells you what the market is paying. Its financial statements help you explore the business behind that price. Looking at both can add useful context to your research.
Three statements, three perspectives
- Income statement: How much revenue did the company generate, and what remained after expenses?
- Balance sheet: What assets and obligations did the company report at a particular point in time?
- Cash flow statement: Where did cash come from, and how was it used over the period?
These statements are connected, but they answer different questions. Profit and cash flow, for example, are not interchangeable.
Look for patterns over time
One reporting period can be unusual. Comparing several periods can help you investigate changes in revenue, margins, debt or cash flow. Consider seasonality and whether the periods being compared cover the same length of time.
Read the details
Definitions, accounting choices, acquisitions and one-off events can affect comparisons. Read the accompanying notes and company disclosures before drawing conclusions. Ratios can be useful starting points, but the underlying figures and the business context matter just as much.