The three financial statements are deeply connected: Net Income from P&L flows into Retained Earnings on the Balance Sheet. Depreciation from the Balance Sheet affects P&L expenses. Changes in Balance Sheet items (receivables, payables) affect Cash Flow. Understanding these connections is what separates founders who truly understand their numbers.
Key Takeaways
- Net Income → Retained Earnings → Equity.
- Changes in working capital affect cash flow.
- The three statements tell one story from three angles.
- Financial modeling = connecting all three statements.