Walk me through the three financial statements.
Whether you know what each statement is for — not just its line items — and can say it in under a minute.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
Show the model answer
The income statement shows profitability over a period: revenue, less costs, down to net income. The balance sheet is a snapshot at a date: what the company owns (assets) and how it is funded (liabilities and equity) — and the two sides always balance. The cash flow statement reconciles net income to the actual change in cash, in three parts: operating, investing and financing.
The full answer
Income statement
Revenue, less cost of goods sold, gives gross profit. Less operating expenses (SG&A, R&D) gives EBITDA; less depreciation and amortisation gives operating profit (EBIT). Less interest and tax gives net income. It is prepared on an accrual basis: revenue when earned, costs when incurred — not when cash moves.
Balance sheet
Assets = Liabilities + Shareholders' equity
Assets: cash, receivables, inventory, PP&E, intangibles and goodwill. Liabilities: payables, accrued expenses, deferred revenue, debt. Equity: share capital plus retained earnings — the profits kept in the business over its life.
Cash flow statement
- Operating: start from net income, add back non-cash charges (D&A, impairments, share-based pay), adjust for changes in working capital.
- Investing: capex, acquisitions, disposals, purchases of investments.
- Financing: debt raised or repaid, shares issued or bought back, dividends.
The sum of the three is the change in cash, which ties to the balance sheet.
Mistakes to avoid
Reciting line items without saying what each statement is for.
Forgetting that the cash flow statement starts from net income, not revenue.
Calling EBITDA a line every company reports — it is a measure analysts calculate.
Follow-ups they may ask
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