Financial statements: income & balance sheet

This is lesson-collection #07 of Stock Knowledge 101, merging the former kb20–kb22 (3 mini-lessons). Read in order.

Three financial statements overview

This is Lesson 20/31 of Stock Knowledge 101 〔Financials〕.

• Income statement: profit over a period (revenue−cost−expense=profit), shows earning power.
• Balance sheet: the ‘house’ at a point (assets=liabilities+equity), shows financial structure.
• Cash flow statement: cash in/out, split operating/investing/financing, shows real money.
• Read all three together: good profit but no cash (high receivables) = paper riches, beware.

📌 Income statement tells a story, cash flow tells the truth, balance sheet is the foundation.

Reading the income statement

This is Lesson 21/31 of Stock Knowledge 101 〔Financials〕.

• Core chain: revenue → COGS → gross margin → three expenses → operating profit → net profit.
• Gross margin=(revenue−COGS)/revenue; higher = more pricing power/moat.
• Look at attributable net profit, not total profit (the former is what shareholders earn).
• Watch trend and non-recurring gains (one-off asset sales should be stripped).

📌 Gross margin decides life-or-death; attributable net = ownership; discount one-off gains.

Reading the balance sheet

This is Lesson 22/31 of Stock Knowledge 101 〔Financials〕.

• Left = assets (where money went): cash, receivables, inventory, fixed assets, goodwill.
• Right = liabilities + equity (where money came from): debt, payables, retained earnings.
• Asset-liability ratio = total liabilities/total assets; >70% = heavy repayment pressure (varies by industry).
• Beware ‘high cash + high debt’ and huge goodwill (impairment landmine).

📌 Three things: is leverage too high, is cash real, is goodwill a mine.

⚠️ This article is a methodological illustration and does not constitute any investment or trading advice. Markets are risky; decide with caution.