The Balance Sheet
The balance sheet is a snapshot at a point in time: Assets = Liabilities + Shareholders' Equity.
Current Assets: cash, receivables and inventory — converted to cash within 12 months. Current Ratio (current assets ÷ current liabilities) above 1.5 is generally healthy.
Non-Current Assets: property, plant, equipment and intangibles (patents, brand).
Shareholders' Equity: paid-in capital plus retained earnings. Negative equity — liabilities exceeding assets — is a serious warning sign.
The Income Statement
Revenue → Cost of Goods Sold → Gross Profit → Operating Expenses → EBIT → Interest → Pre-tax Profit → Net Profit.
Gross margin = Gross Profit ÷ Revenue. Net profit margin = Net Profit ÷ Revenue. Watch for trends over multiple quarters rather than a single period.
The Cash Flow Statement
Three sections: operating (cash from the business), investing (capex, asset sales) and financing (debt and dividends).
Free Cash Flow (FCF) = Operating Cash Flow − Capital Expenditure. A company generating positive FCF despite an accounting loss can still be financially healthy.