Lesson Summary

In this overview, we will cover the three main financial statements: the income statement (profit and loss), the cash flow statement, and the balance sheet. We will discuss each statement's individual purpose and how they interrelate to portray a company's financial performance accurately.

Starting with the income statement, its main purpose is to show a company's profitability and operating performance. Below are the key components:

• Revenue: Total income from products or services sold.
• Cost of Sales: Direct costs associated with delivering the product.
• Gross Profit: Revenue minus cost of sales, indicating operational efficiency.
• Operating Expenses (OPEX): Workforce and non-workforce costs supporting business operations.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization.
• Net Income: Total company profit.

Moving on to the cash flow statement, it consists of three main components:

• Operating Activities: Cash flows from core business activities like customer collections and vendor payments.
• Investing Activities: Cash used in investments, such as property, equipment, or securities.
• Financing Activities: Cash flows from raising or repaying capital, including stock issuance or debt repayment.

Lastly, the balance sheet summarizes the financial position of a company, including assets, liabilities, and equity. Cash and cash equivalents appear as the first asset on the balance sheet, representing the cash position of the company.

Together, these three statements provide a comprehensive view of a company’s financial health, performance, and cash management, forming the foundation for effective budgeting and forecasting.