Quick answer
Start with the three core statements. The income statement shows revenue, costs and profit over a period. The balance sheet shows assets, liabilities and shareholders' equity on one date. The cash flow statement shows cash from operating, investing and financing activities [1].
Key points
- The income statement covers a period; the balance sheet is a snapshot of a single date.
- On every balance sheet, assets equal liabilities plus shareholders' equity.
- The cash flow statement shows whether profit turned into real cash.
- US public companies file audited annual statements in Form 10-K and unaudited quarterly ones in Form 10-Q.
- Filings are free on the SEC's EDGAR website; the notes and MD&A explain the numbers.
#Where do you find a company's financial statements?
US public companies file their statements with the SEC. The annual Form 10-K includes the company's audited annual financial statements and a discussion of its business results [2]. The quarterly Form 10-Q is filed for each of the first three quarters of the fiscal year and contains unaudited financial statements [2]. Major events in between, such as a change in leadership or preliminary earnings, are reported on Form 8-K [2].
All of these are free on the SEC's EDGAR website [2]. Inside a 10-K, the financial statements sit in Item 8, the risk factors in Item 1A and management's discussion and analysis (MD&A) in Item 7 [3]. Most companies also post their 10-Ks and 10-Qs on their own websites [3].
#What does the income statement tell you?
The income statement shows the revenue a company earned over a specific period and subtracts the costs and expenses of earning it, ending in net earnings or losses [1]. Read it from the top down: revenue (sometimes called sales), then the cost of producing what was sold, then operating expenses such as salaries and rent, then interest and taxes. What is left is net income, often called the bottom line.
The income statement also reports earnings per share (EPS). The SEC's guide explains EPS as how much each share would receive if all net earnings were distributed, and pairs it with an example: a company earning $2 per share with a $20 stock price has a P/E ratio of 10 to 1 [1]. Read more in what the P/E ratio is.
Worked example
A simplified income statement
A hypothetical company reports one year of results, in millions of dollars. It has 20 million shares outstanding.
- Revenue
- $500.0M
- − Cost of goods sold
- $300.0M
- = Gross profit (40% of revenue)
- $200.0M
- − Operating expenses
- $120.0M
- = Operating income
- $80.0M
- − Interest expense
- $10.0M
- = Pre-tax income
- $70.0M
- − Income tax
- $14.7M
- = Net income (11.06% of revenue)
- $55.3M
- EPS ($55.3M ÷ 20M shares)
- $2.765
Each line answers a question: did the company sell at a profit (gross), run the business at a profit (operating), and keep a profit after interest and tax (net)?
Hypothetical numbers, calculated in Python, to show the layout. Real statements contain more lines.
#What does the balance sheet show?
The balance sheet shows what a company owns and what it owes at a single point in time. It always follows one equation: assets = liabilities + shareholders' equity [1]. Assets are things of value the company controls, such as cash, inventory and buildings. Liabilities are what it owes, such as loans and unpaid bills. Shareholders' equity is what would be left for owners if assets were used to pay every liability; per share it relates to book value.
A balance sheet always balances
What the company owns
- Assets: $400M
- Cash, receivables, inventory
- Property, equipment, other long-term assets
Who has a claim on it
- Liabilities: $250M (lenders, suppliers)
- Shareholders' equity: $150M (owners)
- Total: $400M
#Why does the cash flow statement matter?
Profit and cash are not the same. A company can book a sale before the customer pays, or record expenses that involve no cash leaving the bank. The cash flow statement tracks actual cash in three sections: operating activities, which reconcile net income to the cash actually received; investing activities, such as buying or selling long-term assets; and financing activities, such as selling stock or bonds or repaying loans [1].
| Section | What it covers | Example amount |
|---|---|---|
| Operating activities | Cash from running the business; starts from net income and adjusts for non-cash items | +$70M |
| Investing activities | Buying or selling long-term assets such as equipment | −$40M |
| Financing activities | Issuing or buying back stock, borrowing or repaying debt, paying dividends | −$15M |
| Net change in cash | Sum of the three sections | +$15M |
In this example, operating cash flow of $70M is above net income of $55.3M, which suggests profit is being backed by cash. When operating cash flow is persistently far below net income, it is worth reading the notes to understand why.
#What should a beginner read first?
A first pass through a 10-K
Read the business description
Item 1 explains what the company sells and where. You cannot judge numbers without knowing the business.
Skim the risk factors
Item 1A lists the risks management considers most significant.
Compare two years of the income statement
Statements show prior periods side by side. Is revenue growing? Are profits keeping pace?
Check the balance sheet and cash flows
Look at how much debt there is relative to equity, and whether operating cash flow supports reported profit.
Read MD&A and the notes
The SEC's guide notes that the footnotes cover significant accounting policies and that MD&A discusses important trends and risks [1].
Common beginner mistakes
Looking only at net income
A single profit figure hides a lot. Check revenue trends, margins and operating cash flow alongside it.
Confusing a quarter with a year
10-Q figures cover a quarter (and year-to-date) and are unaudited; 10-K figures cover a full year and are audited. Compare like with like.
Skipping the notes
Accounting policies, one-off items and debt terms often appear only in the notes. They can change how the headline numbers should be read.
Relying on summaries instead of the filing
Data sites can use adjusted figures or make errors. When a number matters, check it in the filing on EDGAR.
What's the bottom line?
Financial statements answer three questions: did the company make money, what does it own and owe, and did profit turn into cash. US public companies publish all three in their 10-K and 10-Q filings, free on EDGAR, with notes and MD&A that explain the numbers. Start with one company you know, compare two years side by side, and read the notes before trusting any single figure. To put the earnings figure to use, see the P/E ratio, or revisit what a stock is.
Frequently asked questions
What is the difference between a 10-K and a 10-Q?
A 10-K is the annual report and contains audited financial statements. A 10-Q is filed for each of the first three quarters, is shorter, and contains unaudited statements.
Are financial statements audited?
The annual financial statements in a 10-K are audited. The quarterly statements in a 10-Q are unaudited.
Which statement is most important?
None works alone. The income statement shows profitability, the balance sheet shows financial strength, and the cash flow statement shows whether profits turn into cash. Reading them together gives the clearest picture.
Where is earnings per share reported?
EPS appears on the income statement, usually near the bottom, often as both basic and diluted EPS. It is the starting point for the P/E ratio.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- U.S. Securities and Exchange Commission. Beginners' Guide to Financial Statements (2026). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. Public Companies (2026). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. Investor Bulletin: How to Read a 10-K/10-Q (2026). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
