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By itself, the balance sheet shows only metrics related to value. But when you use it with information from the income statement and the statement of cash flows, you can determine how effectively a company is using its assets to generate income, as well as how well a company may use income to pay its debts.
Chapter 5
Incoming Income
IN THIS CHAPTER
How can you tell whether a company is successfully generating wealth beyond the wildest dreams of its owners, providing them with levels of luxury understood only through ancient mythology, or dooming them to a life of desperate poverty from which they may never escape, or something in between? By looking at the company’s income statement. Simply put, the income statement is a financial report that describes whether a company is thriving in its pursuit of income or flushing money down the toilet.
In this chapter, I break down the income statement in the order that it’s written, starting with the total amount of money made and then going through all the additional revenues and all the costs, until I end with a profit (or loss, if your company isn’t doing so well).