The three main financial statements regularly produced by publicly traded companies are the income statement, balance sheet and statement of cash flow. Both the income statement and the balance sheet are essentially statements of the company's value, although laid out from different perspectives. They also differ in that the income statement represents the company's value measured over the time period covered by the statement, usually quarterly or annually, while the balance sheet is more of a snapshot of the company's financial condition reflecting only the specific time at which the balance sheet report is produced.

The income statement, also known as the profit and loss, or P&L, statement, runs down the revenues and expenses of a company over a specified time period, showing the company's net profit for the period. All publicly traded companies are required to produce an income statement at least annually, but many firms choose to produce quarterly income statements as well. The income statement provides market analysts and investors with much of the data used to evaluate a company's financial condition, enabling them to calculate various profitability ratios such as gross, operating and net profit margin ratios. The literal “bottom line” on a company's income statement shows the company's net profit over the time period covered by the statement. Data of particular importance to investors and analysts include the company's operating margin, which is often the best indicator of how well a company is managed, and the bottom line profit, since this figure is used to determine earnings distributed to shareholders in the form of dividends.

The balance sheet provides a more basic snapshot view of a company's finances, laying out the balance of a company's assets versus liabilities and shareholders' equity at the time of the report. Assets are typically recorded on a company's balance sheet in order of liquidity; assets such as cash and inventory that can quickly be converted into cash are listed first. Other assets considered fairly liquid are accounts receivable and short-term investments. Less liquid, more long-term assets include real property and other property such as office equipment and machinery. The last assets typically listed are any intangible assets the company possesses. Company liabilities are listed in the order in which payment is due and include outstanding debt, accounts payable, taxes and any other expenses. The sum of assets, liabilities and shareholders' equity provides a shorthand look at a company's financial condition and enables market analysts and investors to evaluate the balance that exists between a company's assets and liabilities or between the company's assets and shareholders' equity, all of which factor into forecasting the company's probable future performance.

While both the income statement and the balance sheet are intended to reflect a company's current financial condition and value, the income statement provides a more detailed look at revenues versus expenses, while the balance sheet provides a more basic statement of assets versus liabilities.

  1. How are the three major financial statements related to each other?

    Learn why investors analyze a company's financial statements, and how the income statement, balance sheet and cash flow statement ... Read Answer >>
  2. What is the difference between an income statement and a balance sheet?

    Find the current value of a business by reading the balance statement and determine whether operations are efficient by analyzing ... Read Answer >>
  3. Which financial statements are most important when performing ratio analysis?

    Learn which financial statements are used for ratio analysis. Find out what financial data is needed to conduct fundamental ... Read Answer >>
  4. How are a company's financial statements connected?

    When you do research on different companies by looking at their annual reports, you will typically come across two separate ... Read Answer >>
  5. What is the difference between a cash flow statement and an income statement?

    Learn how a cash flow statement measures the sources and uses of a company's cash, while an income statement measures a company's ... Read Answer >>
  6. What does financial accounting focus on?

    Learn the main tenets of financial accounting, the guidelines by which it is governed and how outsiders use it to gauge a ... Read Answer >>
Related Articles
  1. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Investing

    Comparing the P&L Statement and the Balance Sheet

    Basically, the balance sheet shows how much a company is worth, while the P&L statement reveals if a company is profitable or not.
  3. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  4. Investing

    5 Tips For Reading A Balance Sheet

    If you know how to read it, the balance sheet provides valuable information on a potential investment.
  5. Investing

    Understanding the Income Statement

    The best way to analyze a company—and figure out if it's worth investing in—is to know how to dissect its income statement. Here's how to do it.
  6. Investing

    Understanding the P&L Statement

    A company’s profit and loss statement, also called its income statement, summarizes its income and expenses for a quarter or year.
  7. Investing

    How To Read Apple's Balance Sheet

    We explain how to find, read, and analyze a balance sheet from Apple.
  1. Financial Statements

    Records that outline the financial activities of a business, ...
  2. Financial Performance

    A subjective measure of how well a firm can use assets from its ...
  3. Long-Term Assets

    1. The value of a company's property, equipment and other capital ...
  4. Clean Balance Sheet

    A company's financial statement that summarizes its assets, liabilities ...
  5. Common Size Financial Statement

    A company financial statement that displays all items as percentages ...
  6. Off Balance Sheet - OBS

    An asset or debt that does not appear on a company's balance ...
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center