1️⃣ The 3 Financial Statements • Income Statement (IS): Profitability over time Revenue → Expenses → Net Income • Cash Flow Statement (CFS): Cash in/out Operating, Investing, Financing • Balance Sheet (BS): Snapshot Assets = Liabilities + Equity ⸻ 2️⃣ How They Link (Core Question) • Net Income (IS) → Retained Earnings (BS) • Depreciation → Added back on CFS • CapEx → Investing cash flow → Assets (BS) • Debt / Equity → Financing cash flow → BS ⸻ 3️⃣ Depreciation Impact (Classic) • IS: Depreciation ↓ → Net Income ↓ • CFS: NI ↓ but Depreciation added back • BS: Assets ↓, Equity ↓ 👉 Cash increases slightly (tax shield) ⸻ 4️⃣ Revenue Overstatement • IS: Net Income ↑ • CFS: Cash from ops ↑ (initially) • BS: Retained earnings ↑ ⚠️ But future periods suffer ⸻ 5️⃣ CapEx vs Opex • CapEx: Capitalized, depreciated over time • Opex: Expensed immediately CapEx improves short-term profit, hurts cash ⸻ 6️⃣ Deferred Revenue • Cash received before revenue earned • Liability on BS • Common in SaaS ⸻ 7️⃣ Working Capital (VERY IMPORTANT) WC = Current Assets – Current Liabilities • Increase in WC → Cash OUT • Decrease in WC → Cash IN Examples: • Inventory ↑ → Cash ↓ • Accounts Payable ↑ → Cash ↑ ⸻ 8️⃣ Enterprise Value vs Equity Value • Equity Value: Share price × shares • Enterprise Value: Equity + Debt – Cash Used for valuation comparisons ⸻ 9️⃣ One Line to Memorize (Interview Gold) “The income statement shows profitability, the cash flow statement shows liquidity, and the balance sheet