The income statement , balance sheet and cash flow statement are all interrelated.

The income statement describes how the assets and liabilities were used in the stated accounting period. The cash flow statement explains cash inflows and outflows, and it will ultimately reveal the amount of cash the company has on hand, which is also reported in the balance sheet.

By themselves, each financial statement only provides a portion of the story of a company's financial condition; together, they provide a more complete picture. The Relationship Between the Financial Statements. Managers use them to aid in decision making.

To learn more, check out Readin g The Balance Sheet , Understanding The Income Statement and The Essentials Of Cash Flow. One important way the financial statements are used together is in the calculation of free cash flow FCF.

Smart investors love companies that produce plenty of free cash flow. It signals a company's ability to pay debt and dividends , buy back stock and facilitate the growth of business - all important undertakings from an investor's perspective.

However, while free cash flow is a great gauge of corporate health, it does have its limits and is not immune to accounting trickery. For background reading, see Analyzing Cash Flow The Easy Way. Dictionary Term Of The Day.

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How Financial Statements Are Related to Each Other

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Balance sheet and income statement relationship (video) | Khan Academy

Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself. The income statement shows how it is financially performing. The metrics for the Statement of Cash Flows is best viewed over time.

What Is the Difference Between Income Statement, Balance Sheet, and Cash Flow? -- The Motley Fool

The financing activity in the cash flow statement measures the flow of cash between a firm and its owners and creditors. Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.

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