3
Core Financial Statements
10
Critical Numbers to Track
Moutai
Case Study Company
The Three Statements Every Investor Must Read
Every public company releases three financial statements quarterly. Together, they tell the complete story of a business. Think of them as: what you earned (Income Statement), what you own (Balance Sheet), and what actually moved through the bank (Cash Flow Statement).
Statement 1: Income Statement — The Scorecard
The income statement shows revenue, costs, and profit over a period. Key lines to focus on:
💡 Income Statement Key Metrics
- Revenue — is it growing? How fast? From price increases or volume?
- Gross Margin — higher is better; shows pricing power (Moutai: 91%!)
- Operating Margin — includes operating costs; shows operational efficiency
- Net Income — the bottom line, but can be manipulated by accounting choices
Statement 2: Balance Sheet — The Health Check
The balance sheet is a snapshot of assets, liabilities, and equity at one point in time. Assets = Liabilities + Equity.
💡 Balance Sheet Key Metrics
- Cash and Equivalents — the war chest; can the company survive a crisis?
- Total Debt — how leveraged is the company? Debt/Equity ratio tells you
- Accounts Receivable — if growing faster than revenue, customers aren't paying on time
- Inventory — rising inventory can signal weak demand
Statement 3: Cash Flow Statement — The Truth
Revenue and profit can be manipulated through accounting. Cash flow cannot. The cash flow statement shows actual money moving in and out.
💡 Cash Flow Key Metrics
- Operating Cash Flow — cash generated from core business activities
- Capital Expenditures (CapEx) — money spent on maintaining/growing the business
- Free Cash Flow = Operating Cash Flow - CapEx — what's left for shareholders
- If FCF is consistently less than Net Income — earnings quality is poor
The 10 Numbers That Matter Most
| # | Metric | What It Tells You | Ideal Value |
|---|---|---|---|
| 1 | Revenue Growth | Business momentum | >10%/yr |
| 2 | Gross Margin | Pricing power | >40% |
| 3 | Operating Margin | Operational efficiency | >20% |
| 4 | Net Margin | Bottom-line profitability | >15% |
| 5 | ROE | Return on equity | >15% |
| 6 | Debt/Equity | Leverage risk | <0.5 |
| 7 | Current Ratio | Short-term liquidity | >1.5 |
| 8 | FCF/Net Income | Earnings quality | >80% |
| 9 | Revenue per Employee | Productivity | Industry-dependent |
| 10 | Dividend Payout Ratio | Sustainability | <60% |
💡 Financial Statements — Key Summary
- Income Statement = what you earned; Balance Sheet = what you own; Cash Flow = what's real
- Gross margin is the single best indicator of competitive advantage
- Cash flow is harder to manipulate than earnings — follow the cash
- The 10 key numbers give you 80% of the analytical value
- Read statements in order: Income → Balance Sheet → Cash Flow
- Compare metrics to industry peers, not in isolation