Think about the different types of financial statements you learned about the income statement, statement of retained earnings, balance sheets, and statements of cash flow. If you were an investor, would you place more emphasis on any one particular financial statement? Why, or why not?

The three most important financial statements are the income statement, balance sheet and cash flow statement. They are all linked together, and any investor needs to analysis the three of them together.

The income statement and the cash flow statement show information about a certain period of time, while the balance sheet is like a photo of one single day. Each one shows something different about the company:

the income statement shows how profitable the company is. But no matter how profitable a company might be, if it doesn't have enough cash to function then it is bankrupt, that is the importance of the cash flow statement. The balance sheet shows the financial position of the company, specially how the company is being financed.

Where one ends, other one begins:

The income statement starts with total revenue and ends in net income. Net income is the starting point of the cash flow statement and at the same time shows the change in retained earnings (balance sheet). The cash flow statement starts with net income and ends in the cash balance which is the starting point of the balance sheet. The balance sheet ends in retained earnings and the changes in retained earnings are given by net income and dividends paid.

They are all linked together and they are all needed in order to perform a proper analysis.

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