The three financial statements
| Statement | Answers | Look at |
|---|---|---|
| Income statement | Did the company make a profit this year? | Revenue growth, margins, net profit |
| Balance sheet | What does it own and owe? | Cash, debt, equity, receivables |
| Cash flow statement | Did real cash come in? | Operating cash flow vs net profit, capital spending, free cash flow |
Profit can be shaped by accounting choices; cash is harder to fake. If profit grows year after year but operating cash flow does not, ask why.
Questions people ask
Is a low P/E always cheap?
No. A low P/E can mean the market expects profit to fall. Compare with the company's history, its sector and its growth.
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