- What each of the three statements is actually for
- How one single sale shows up differently in all three
- Why a profitable company can still run out of money
Ravi runs an electrical goods shop. If you were thinking of buying a stake, you'd ask him three questions, and no single answer would do.
"How much did you make this year?" — that's the Profit & Loss statement. A story over a period.
"What do you own, and who do you owe?" — that's the Balance Sheet. A photograph on one date.
"How much cash actually moved through your hands?" — that's the Cash Flow Statement. The bank account, not the story.
Ravi can honestly say he made ₹40 lakh profit, own ₹2 crore of stock, and still not have the cash to pay next month's salaries. All three at once. That is not fraud — it is completely normal, and it's why three statements exist.
- Profit & Loss (P&L)Answers: Did we make money?Type: A film — over a periodTime: Quarter or year
- Balance SheetAnswers: What do we own and owe?Type: A photograph — one instantTime: As on 31 March
- Cash FlowAnswers: Did cash actually move?Type: A bank statementTime: Quarter or year
One sale, three different appearances
Follow a single transaction and the whole system clicks into place. On 20 March, Ravi sells ₹10 lakh of cables to a builder. The builder will pay in 90 days. The cables cost Ravi ₹7 lakh, already paid for.
- P&L — revenue
- +₹10,00,000recorded now
- P&L — cost of goods
- −₹7,00,000
- P&L — profit
- +₹3,00,000profit exists
- Balance sheet — receivables
- +₹10,00,000an asset: money owed
- Balance sheet — inventory
- −₹7,00,000cables gone
- Cash flow — cash received
- ₹0nothing arrived
Profit is an opinion formed under accounting rules. Cash is a fact. When the two disagree for long, believe the cash.
Which one do you read first?
- 1P&L first — it takes two minutes and tells you whether the business is growing and whether it keeps a decent slice of what it sells.
- 2Cash flow second — the fastest lie detector available. Does operating cash flow roughly track reported profit over several years?
- 3Balance sheet third — the survival check. How much debt, how much cash, how much money is stuck in unsold stock and unpaid bills.
The P&L is the one the media quotes, the one management presents, and the one that produces a single satisfying number. It is also the easiest of the three to flatter, because it depends on judgements: when a sale counts, how fast an asset wears out, whether a doubtful debt is written off this year or next.
The cash flow statement is the hardest to manipulate, because cash either landed in the bank or it didn't. That's exactly why the people who quietly make money read it first — and why we'll spend a whole lesson on it.
- ✓Profit growing steadily over years
- ✓Operating cash flow tracking close to profit
- ✓Debt flat or falling while the business grows
- ✓Receivables and inventory growing no faster than sales
- ✕Profit rising while operating cash flow stalls or turns negative
- ✕Debt rising every year to fund normal operations
- ✕Receivables growing much faster than sales
- ✕Frequent "exceptional items" that are somehow exceptional every year
See it live · Every fundamental report on this site charts multi-year revenue, profit and operating cash flow together — the divergence is visible at a glance.
Open a report →In one screen
- 1P&L = did we make money (a period). Balance sheet = what we own and owe (an instant). Cash flow = did cash move (a period).
- 2One credit sale creates profit today and cash much later — or never.
- 3Profit is a judgement; cash is a fact.
- 4Read P&L, then cash flow, then balance sheet.
Check yourself
Nothing is scored or stored — the explanation after each answer is the point.
A company reports its best-ever profit but cannot pay salaries this month. Which is most likely?
Which statement is a snapshot at a single moment rather than a record over a period?