So What Club
Start free

Foundation · Business finance

Reading a business through its numbers: the three statements, cash and value

How the profit and loss statement, the balance sheet and the cash flow statement fit together, and why profit is not cash. How working capital ties up money and what EBITDA hides. When a business earns more than its cost of capital, and how to value it. And how to read a real company's annual results in ten minutes.

96 min8 lessonsFacts checked against sources on
Start lesson 1: How the three statements link: one company through all three Skip to the practice: Should a fund pay PLN 600 million for a packaging maker?

Key takeaways

  • The P&L (profit and loss statement) shows profit over a period. The balance sheet shows what a company owns and owes on one day.
  • Profit follows accounting rules about when revenue and costs count. Cash is what actually moved.
  • Working capital is the cash tied up in running the business: stock plus money owed by customers, minus money owed to suppliers.
  • EBITDA (earnings before interest, tax, depreciation and amortization) asks what the operations earn before the cost of the assets they use.
  • A business creates value only when it earns more on the money invested in it than that money costs.
By the end you will be able to
  • Follow one company through all three statements and show how they link
  • Read a cash flow statement and explain the gap between profit and cash
  • Turn working capital into days and calculate the cash freed by changing them
  • Explain the difference between EBITDA, operating profit and free cash flow
  • Compare return on invested capital with the cost of capital, and say whether growth creates value
  • Value a business with multiples and a simple DCF, judge a project with NPV, IRR and payback, and say when each misleads
  • Pull the five numbers that matter from a real annual results release

Lessons

1

How the three statements link: one company through all three

Follow a fictional furniture maker through one year: its profit, its cash, and the balance sheet at the start and the end.

12 min
2

The cash flow statement, and why profit is not cash

The three sections, the items that move profit but not cash, what the signs of each section tell you, and how much of its profit a company turns into cash.

11 min
3

Working capital in days: receivables, inventory, payables and the cash conversion cycle

Turn the balance sheet into days, find the cash freed by each day saved, see why growth uses up cash, and meet a company whose suppliers fund it.

12 min
4

EBITDA versus operating profit versus free cash flow

Three measures, three different questions. Why two companies with the same EBITDA can produce very different cash, and how lease accounting lifts EBITDA.

11 min
5

Return on capital against its cost: ROIC and WACC in plain words

A business creates value only when it earns more on its capital than that capital costs. How to calculate both sides, and why growth can destroy value.

11 min
6

Valuation in practice: multiples, a simple DCF, NPV, IRR and payback

Value a company two ways, judge a project three ways, and know where each method misleads.

14 min
7

Reading a real results release: Inditex, FY2025

Open a real annual results release and pull out the five numbers that matter in ten minutes: growth, gross margin, operating margin, cash generated, and net cash.

13 min
8

Using this in a case: what to ask, what to calculate, what to say

Turn the finance ideas into a case answer: the questions that matter, the four calculations, a fully worked deal question, and a drill set with exact answers.

12 min

Worked cases in this module

Look it up

Key terms

Start with lesson 1

8 lessons, about 96 minutes in all. Each one builds on the one before.

Start lesson 1: How the three statements link: one company through all three Skip to the practice: Should a fund pay PLN 600 million for a packaging maker?