The focus of financial performance often centers around the Profit & Loss Statement. No doubt, revenues, gross contribution, overhead and profitability are key indicators of a firm's financial health. However, the P&L Statement does not tell the whole story and must be examined in relation to the Balance Sheet and Statement of Cash Flows.
A complete set of financial statements is essential to evaluate current results and to plan for improvements in the future. When the relationships between the financial statements are properly understood, the value of the information provided is greatly enhanced.
An important step is to visually examine the financial statement relationships to see the connections between profitability, working capital management, capital expenditures, debt and investor impacts and cash flows.
The graphic below, a set of "color-coded financial statements" sets the stage for discussing not only the invidual merits of each financial statement but how they relate to one another as well.