Investing · 5 min read
Reading Financial Statements
Financial statements — income statement, balance sheet, cash flow — tell you if a business is healthy.
Why it matters
Investing without reading these is like buying a used car without opening the hood.
Advantages
- Understand real profitability
- Spot debt problems
- See cash generation vs profits
Risks
- Complex accounting can hide issues
- Ratios need context
Real-world example
A company can report profits but have negative cash flow — a warning sign worth investigating.
Key takeaways
- Cash flow is harder to manipulate than earnings
- Watch debt-to-equity trends
- Compare within the same industry
Quick quiz
1. Which statement best shows a company's ability to generate real cash?