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Relationship between Balance Sheet, Income Statement & Cashflow Statement when modeling

Bruce Wasserstein in his book Big Deal wrote about the relationship between the three financial statements: balance sheet, income statement & cashflow statement. I seem to be quoting time and again from this book, which speaks to how good the book is. Even though the book is very very thick (some 1000  pages), the writing is clear, succinct, and illuminating.

Net income – an income statement item – is dependent on interest expense, which is dependent on yearly average debt and cash balances – balance sheet items – which in turn are dependent on cash flow (positive cashflow can be used to pay down debt, negative cashflow would require additional debt to be added), a figure whose calculation begins with net income (cash expenses such as capex, dividends, and stock repurchases are not yet factored into net income).

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Discussion

8 thoughts on “Relationship between Balance Sheet, Income Statement & Cashflow Statement when modeling

  1. I am an accounts student and often search for information which might be helpful for me in my career. The relationship between balance sheet and income statement has been Greek for me. But I am really impressed the way you have explained it here in the article.

    Posted by balance sheet template | September 15, 2010, 3:15 pm
  2. Glad you found it useful!

    Posted by whatheheckaboom | September 16, 2010, 2:42 pm
  3. Thank you for that helpful insight on the interrelationships.

    Posted by Irie | November 3, 2010, 7:32 am
  4. these three relationships are so helpful for me. Thanks sir.

    Posted by Legal advance funding | November 13, 2010, 8:23 pm
  5. I am a student of Financial Management……….
    I always search for this type of article…………..
    I am very glad to I am finally find out The difference between Balance sheet & Income Statement……..
    And I am really appreciate the way you have explain it……..
    Thanks for sharing this type of article……
    Nice job.
    Keep it up…….

    Posted by charlottesville va houses | April 27, 2011, 6:05 am
  6. That was a wonderful explanation. I appreciate it. Keep up the good work.

    Posted by vicky | September 7, 2011, 3:56 am
  7. not so good. there is lot more relationship between theses statements.

    Posted by realhailian | February 18, 2012, 8:34 am

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