How are the three statements connected?

Net income flows into equity, and cash changes appear in the cash flow statement then reconcile to balance-sheet cash. They should be consistent.

Quick Definition

Net income (Income Statement) flows into retained earnings on the Balance Sheet. The Cash Flow Statement bridges the two, explaining why cash changed. Inconsistencies between statements can signal accounting issues.

Use this concept with tools

After-tax Return

Flat tax model for after-tax projection.

Payback Period

Time to recover initial outlay from cashflows.

Position Sizing + Kelly

Risk-based position size and Kelly fraction.

Related concepts

What are the three core financial statements?

The three financial statements are: Income Statement (profit & loss over a period), Balance Sheet (assets, liabilities & equity at a point in time), and Cash Flow Statement (actual cash movements).

What does a balance sheet tell me?

A balance sheet is a snapshot: Assets = Liabilities + Shareholders' Equity. Use it to assess leverage (how much debt?), liquidity (can it pay bills?), and capital structure.

What does an income statement tell me?

An income statement (P&L) shows revenues, costs, and profit over a period. Key items: revenue growth, gross margin trend, and net income. It answers: is the company consistently profitable?

What does a cash flow statement tell me?

The cash flow statement tracks actual cash in three categories: operating (core business), investing (asset purchases), and financing (debt & equity). Strong operating cash flow is the gold standard of business health.