Ranking financial statements by importance

ER people or casual investors…

Of the 4 financial statements, which are most important to you when making investment decisions? I think we will find some commonality of answers. I tend to think BS is the most important, then CF, IS, and SE least important to get an idea if I want to invest or not.

They are to be seen in combination.

Only together do they give “the story”.

That being said for the purpose of the question I would say that the P&L is the most important.

+1 to viceroy they need to be taken in combo. Depends what type of investment you are looking at, but id take CF all day for a normal investment. If you are investing in a POS company though BS becomes pretty important.

what is SE?

I’m thinking stockholders or shareholder equity. Aka statement of retained earnings or comprehensive income

isnt that part of BS kid

lets say a company was a person. And say you have the options of being poor/rich in terms of wealth and income.

If you are focused on income? (look at IS / CF).

if you are focused on wealth? (look at BS)

Like someone said you need both to tell the whole story, since you can be a really high income person, but if you have a ton of debt. you’ll get buried in it. or you could be really rich in wealth, but are burning through your money through expenses.

If I had to choose just 1, then it’d be the CF statement; however, as someone has already stated, you use all 3 to see a bigger picture.


Yeah. If I had to read just one (again, this is a very hypothical question) I would also read the CF statement because :

  • the CFO portion usual starts from net income going upwards, so you can get an idea of the profitability and margins

  • obviously you can analyse the cash generating profile of the company

  • you can’t see the balance sheet but in some cases you can see the interests paid on debt (when classified under CFF) AND assuming that you have CF statements for multiple periods you can see de debt movements

  • you get the end cash amount. A company with 30 % of its revenues in cash (not so unusual in Germany, for example) usual tends to be very conservatively managed.

So yeah, if I had to invest based on just one statement, it would be the CF, even if most of the analysis usually pertains to the Income Statement.

Depends on the industry. For example, cash flow statements are practically useless in banks. Generally I think cash flow statement is the most useful

I was also wondering what SE was? I’m used to people discussing three financial statements, not four. But I suppose no harm in splitting it out if that is the convention you are used to.

And I agree with most others who have replied. I think which is most important depends on the company in questin, but you would never invest without looking at all three so it’s really just an academic discussion ultimately.

The problem with the income statement is that it does not always show non-cash items such as depreciation and there is no information on capex.

The problem with the cash flow statement is that it does not show the amount of equity or debt or debt that has been invested to generate the cash flow.

Give me a series of balance sheets and I can determine how much capital the company has invested, how much working capital they need to run the business, and how much cash they are generating on that capital.

SE is shareholder’s equity essentially part of the bs. it tracks net worth of co. its easily manipulated though. Buyback shares and you will look bad. Issue dividends and you will look bad. Issue shares and it looks like you’re increasing net worth. so generally, I would not take it to heart.

as others have said cf is king. but cf has some problems such as stock comp, inventory writedowns, asset impairment.

IS in theory is what management believes is the best measure, but in truth its much easier to manipulate so trust at your own judgment.

I like the points about cash flows giving a realistic picture of profitability, but so much business is done by getting or giving credit that I’ve seen cash flows give a false impression of things like major projects or inventory turnover when the seller doesn’t hold stock until it sells it for example.

Chad’s points on balance sheets above are some of the main reasons why I would say BS

You want to learn more about a new person you meet; rank by order of importance: appearance, personality, knowledge, values.

I will tell you - BS IS the most important if it is printed on a CF colored paper. Looks is what matters the most. how sick would it be to print your presentation on an actual CF in white lettering? I would immediately allocate 4% of the funds…

Stay long enough and the seat (your position) itself will bring you fortune and sometimes even fame. Forget about ‘skills’ or analysis crap. You just need to stay/survive in your seat for long enough time because in the long term, markets go up and your sector will come sooner or later.

Of course there are few…fewer than 10 people who truly have talent and skills…100% of these guys are billionaires along with the rest of the people I described above.


el oh el

Who the fuck uses the statement of comprehensive income?

CF statement imo is #1, so you can see where the money of a company is actually going.

If the question was “what 2 would you want to have” the correct answer would be bs and is, because you can make a cf with them.

You need all 3. This is like asking whether having an engine is more important to driving a car than having the wheels and axles. You need them all. CF could be “the best” as others have stated. However, without knowing what the drivers are of revenues and costs, it’s probably going to be tough to project CF accurately IMO.