First, if there is no income statement, we can calculate the profit of the current year by comparing the ending number and the beginning number of net assets in the balance sheet;
Second, if there is no cash flow statement, the net increase of cash and cash equivalents in the current year can be calculated by changing the opening and closing balances of monetary funds. These two tables are added, but they are more detailed.
Third, the balance sheet and the income statement are intrinsically linked. A dynamic equation combining balance sheet and income statement is: assets = liabilities+owners' equity+income-expenses. From this equation, we can see that inflated profits (income-expenses) are inevitably accompanied by inflated assets or inflated liabilities. When it is difficult to inflate liabilities, most enterprises will choose to inflate assets. For example, once a listed company manipulates profits, 90% is related to assets, and only about 10% is related to liabilities. There is a simple reason. You have to consult with creditors to manipulate debts, while manipulating assets is a unilateral act. Just talk to yourself.
The so-called "moisture" of assets refers to the expenses hidden in the balance sheet, which means that the actual value of surviving assets is lower than the book value, and the moisture in assets is essentially the expenses covered by assets; The so-called "moisture" of liabilities is mainly hidden in the income of "accounts received in advance" and "other payables" on the balance sheet, which is a liability that can never be paid out. As for the water in the owner's equity, it is the escaped capital under the cloak of owner's equity, the false profits carried forward and other capital reserves that have not been transferred out in time.
The difference between listed companies and private enterprises is that listed companies falsify balance sheets and income statements, mainly capitalizing expenses and stuffing them into the balance sheets, which makes the balance sheets swell and the assets puffy; The report fraud of private enterprises is mainly to find ways to expensize capitalized expenses and stuff them into the income statement, making it pale and haggard, as if it had not eaten for decades.
To understand the relationship between balance sheet, income statement and cash flow statement, we must first understand the relationship between expenditure, expenses and assets. All expenses will cause changes in cash, so they should be recorded in the cash flow statement. As for how to record it in the balance sheet and income statement, it depends on whether the expenses are managed for one year or more. If it is only managed for one year, it will be recorded in the income statement and directly treated as the current expense. If the management time exceeds one year, it will generally be capitalized and recorded as an asset in the balance sheet. In short, assets are long-lived expenses, but expenses are the opposite.
There is a contrast between "operating income" in the income statement, "cash received from selling goods and providing services" in the cash flow statement and "accounts receivable" in the balance sheet. Generally, it can be simply estimated as: operating income-accounts receivable, notes receivable = cash received from selling goods and providing services, regardless of changes in taxes payable. In fact, the profit expressed by accrual basis is the income statement; The profit expressed by cash basis is the cash flow statement.
In addition to cash profits, there are at least four kinds of profits. They are: accrued profits, combined with accounts receivable and operating income analysis; Holding profits and analyzing the fluctuation of asset value measured at fair value; False profits, go to the debtor to find out which liabilities have become "profits" through debt restructuring; External injection of profits, that is, the legendary government subsidies.
When the net cash flow generated by operating activities is negative and the profit on the income statement looks good, it can be judged that the profit contains "moisture" and relies too much on accounts receivable, which is the so-called "white profit". Generally speaking, if the growth rate of accounts receivable of listed companies reaches 30% and accounts receivable/total assets reach 50%, it means that the company contains a lot of "moisture" and suffers serious losses.
For the specific analysis of profit quality, two gold content indicators can be calculated:
1, operating income gold content index = cash received from selling goods and providing services/operating income, which is judged by 1. 17;
2. Gold content of net profit = net cash flow from operating activities+financial expenses received from cash-investment income (+cash surplus from disposal of long-term assets). Gold content indicator in net profit = gold content in net profit/net profit, and this indicator is judged by 1
I have to mention fair value. Fair value is essentially breaking through the historical cost principle and modifying the data of financial statements, but no matter how tough it is, it can only modify the data of balance sheet and income statement, but not the data of cash flow statement. Because the change of fair value itself is only a kind of value fluctuation, if it is to affect the income statement, it is also holding profits, and there is no corresponding cash flow.
Due to the adoption of fair value, some economic benefits have actually been included in accounting. Economic benefit = accounting benefit+unrealized tangible assets (increase or decrease) change-realized tangible assets (increase or decrease) change in the previous period+intangible assets value change. Accounting income is the difference between realized income and its related historical cost.
Let the accountant calculate the accounting income, and don't let it cross the line. "Let God's belong to God and Caesar's belong to Caesar." Otherwise, let these unrealized asset changes change the balance sheet and income statement, which completely destroys the reliability of information.