Chapters in Fundamental Analysis
Chapter 1 of 7 · 7 min read
Reading financial statements
Profit & loss, balance sheet and cash flow: what each tells you and the red flags to look for.
Listed companies publish quarterly and annual statements. Three matter most, and they must be read together.
Profit & loss (income statement)
Shows revenue, costs and profit over a period.
- Revenue growth: is the business expanding?
- Operating margin (EBITDA / revenue): pricing power and cost control.
- Net profit and EPS: what is left for shareholders.
- Watch for one-off gains inflating profit.
Balance sheet
A snapshot of what the company owns and owes on a date.
- Debt to equity: how leveraged is it?
- Current ratio: can it cover near-term bills?
- Reserves and net worth: accumulated strength.
Cash flow statement
Profit is an accounting number; cash is real. Healthy firms convert profit into operating cash flow over time. Persistent profit with negative operating cash flow deserves scrutiny.
Key takeaways
- P&L shows performance, balance sheet shows strength, cash flow shows reality.
- Look at multi-year trends, not one quarter.
- Profit without cash flow is a warning sign.
Put it into practice
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Keep learning
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- Valuation ratios: P/E, P/B, EV/EBITDA, dividend yield · Fundamental Analysis
Education only, not investment advice. Updated 2026-10-09.