The Financial Story lies in all 3 Statements

September 30, 2020

The Financial Story lies in all 3 Statements

As a Non-Finance manager do you only look at one Financial report like the P&L when you want to know learn about the numbers?

Most do but the right way is to also look at the Balance Sheet & the Cash Flow Statement

Why is that?

Because the P & L a.k.a Income statement is linked to the Balance sheet & the Balance sheet is linked to the Cash flow statement you need to read all 3 as each gives you different answers about the financial performance of a business.

The P & L shows how much Income and Expenses were recorded in a financial period over 12 months – it shows how much profit was generated
The Balance sheet shows at a given point in time the amount of assets the business owns, how much liabilities it owes & how much share the owners have left in the business as equity – it tells us the strength of a business
The Cash flow statement shows the cash movement over 12 months- it summarises how the business made money & where it was spent & what is left – as cash is king it tells us how favourable its cash position is

I love explaining it this way to get non-Finance people to broaden their thinking when reading & interpreting financial information.

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