Profit, cash, and the balance sheet move together — read them as one system.
| Concept | Explanation | |---|---| | Net income to equity | Profit generally increases retained earnings within shareholders' equity. | | Net income to cash flow | The cash-flow statement reconciles profit with cash after non-cash items and working capital. | | Capital expenditure | Uses cash and creates or increases long-lived assets. | | Debt issuance | Increases cash and liabilities. | | Buyback | Uses cash and reduces equity and shares outstanding. |
Key idea: Read the statements together. A strong income statement can coexist with weak cash flow or a deteriorating balance sheet.