Quiz: Reading Financial Statements 4 questions · 80% to pass 1. The income statement tells you:What a company owns and owes at a point in timeHow much cash moved in and out during a periodWhether the company was profitable over a period (revenue minus expenses)How much the stock price changedThe income statement (P&L) shows revenue, expenses, and profit over a period. It answers: did this company make or lose money during this quarter/year?2. The balance sheet follows the equation:Revenue - Expenses = ProfitAssets = Liabilities + EquityCash In - Cash Out = Net CashPrice / Earnings = ValuationThe balance sheet always balances: Assets (what the company owns) = Liabilities (what it owes) + Shareholders' Equity (the owners' residual claim). This is a snapshot at a single point in time.3. A company with strong net income but negative operating cash flow might be:Extremely healthyRecording revenue it hasn't collected yet (aggressive accounting)Paying too much in dividendsImpossible: income and cash flow always matchProfit and cash are different. A company can book revenue (income statement) before collecting cash (cash flow statement). If income looks good but cash isn't arriving, the company may be using aggressive accounting or have collection problems.4. Which financial statement would you check to see if a company can pay its short-term bills?Income statementCash flow statementBalance sheet (current assets vs current liabilities)Annual report cover letterThe balance sheet shows current assets (cash, receivables, inventory) vs current liabilities (bills due within a year). If current assets exceed current liabilities, the company can likely meet its short-term obligations. Check answers Retake quiz Back to lesson Next lesson →