How the three financial statements connect — and how we verify our data

The income statement, balance sheet, and cash flow statement are three views of the same underlying accounting records. The income statement covers performance over a period, the balance sheet is a snapshot at the end of that period, and the cash flow statement reconciles cash from the start of the period to the end.

They are linked by hard accounting identities, so a figure cannot move in one statement without a matching effect in another. Each individual statement is covered in its own guide: reading an income statement, reading a balance sheet, and reading a cash flow statement.

Net income from the bottom of the income statement does two things. It increases retained earnings inside shareholders’ equity on the balance sheet (reduced by any dividends paid), and it sits at the top of the cash flow statement as the starting point for operating cash flow.

So a single net-income figure appears, directly or as a feed-in, in all three statements. That is the spine that ties the set together.

Depreciation and amortization (D&A) is an expense on the income statement that reduces net income but moves no cash. The cash flow statement adds it back when reconciling net income to operating cash flow, because the cash already left when the asset was purchased.

This is the clearest example of why earnings and cash differ, the subject of the cash-flow-vs-earnings guide. The identity set this guide relies on includes: revenue − cost of revenue = gross profit; free cash flow = operating cash flow − capex; and EBITDA = operating income + depreciation and amortization.

Every financial chart in Aerarium Research is built from XBRL facts tagged in SEC filings — the structured data companies submit with their 10-K and 10-Q reports — rather than from a third-party summary. Each value traces back to a specific filing.

Some figures are derived rather than filed directly, and those carry provenance markers describing how they were computed. Examples: a missing fourth quarter is derived as Q4 = full year − Q1 − Q2 − Q3; free cash flow is computed as operating cash flow − capex; and EBITDA is computed as operating income + depreciation and amortization.

A weekly automated audit checks the values behind the insight charts. It tests whether the sum of segment revenue tracks total revenue, whether revenue − cost of revenue equals gross profit within a small tolerance, and whether any value jumps implausibly from one year to the next. These checks are report-only — they flag candidates for human review rather than editing data automatically.

Two monthly audits cover other failure modes: one looks for series that dead-ended because a company renamed the XBRL concept it uses for a line, and another looks for metrics that should be present given the filed concepts but are missing from a chart. None of these processes guarantees that every figure is error-free; they are systematic checks designed to surface discrepancies so they can be investigated against the original filings.