Learnings · Valuation
The three statements,
and how they link
The most asked question in finance interviews in India, and the base for everything after it. The answer, the classic walk-throughs, and a real company’s latest year.
The question
Walk me through the three financial statements and how they connect.
The answer in sixty seconds
The income statement covers a period: revenue, less costs, down to net profit. The balance sheet is a snapshot on one date: what the company owns, and how that is paid for by debt and by shareholders’ equity. It always balances. The cash flow statement explains how cash moved over the same period, in three parts: operating, investing and financing.
They link in three places. Net profit is the first line of the cash flow statement, and what is not paid out as dividends adds to retained earnings in equity. The cash flow statement turns that profit into cash by adding back non-cash costs such as depreciation and adjusting for working capital, then adds capex and borrowing. Its closing cash is the cash on the balance sheet, which is why the balance sheet still balances.
Change one line and carry it through
Interviewers change one line and ask you to carry it through. Pick an event. Tax is 25%, the round rate most prep material uses; India's rate for most companies under section 115BAA is 25.17% once surcharge and cess are added.
Income statement
- Depreciation−10.0
- Pre-tax profit−10.0
- Tax+2.5
- Net profit−7.5
Cash flow statement
- Operating: Net profit−7.5
- Operating: Add back depreciation+10.0
- Change in cash+2.5
Balance sheet
- Cash+2.5
- Plant and equipment−10.0
- Total assets−7.5
- Retained earnings−7.5
- Liabilities and equity−7.5
Depreciation is not cash, so the only cash effect is the tax it saves: 25% of 10. That is why cash rises when profit falls.
Worked on live numbers
One real year, read across all three
Read down a column and the links show. Depreciation sits between EBITDA and profit but is added back in operating cash. Capex is not in profit at all; it shows in the cash flow and becomes plant on the balance sheet. And the balance sheet balances: liabilities plus equity equal total assets.
Tata Consultancy Services: net profit of ₹49,210 cr turned into ₹52,094 cr of operating cash, 1.1 times profit. The biggest reason is depreciation of ₹5,560 cr, a cost in profit that is not cash.
UltraTech Cement: net profit of ₹8,166 cr turned into ₹15,316 cr of operating cash, 1.9 times profit. The biggest reason is depreciation of ₹4,644 cr, a cost in profit that is not cash.
Bharti Airtel: net profit of ₹26,695 cr turned into ₹1,22,230 cr of operating cash, 4.6 times profit. The biggest reason is depreciation of ₹52,711 cr, a cost in profit that is not cash.
| Rs crore | Tata Consultancy Services | UltraTech Cement | Bharti Airtel |
|---|---|---|---|
| Revenue | ₹2,67,021 cr | ₹87,384 cr | ₹2,10,973 cr |
| EBITDA | ₹72,274 cr | ₹17,383 cr | ₹1,15,726 cr |
| Depreciation and amortisation | ₹5,560 cr | ₹4,644 cr | ₹52,711 cr |
| Interest | ₹1,227 cr | ₹1,811 cr | ₹17,843 cr |
| Pre-tax profit | ₹65,487 cr | ₹10,927 cr | ₹45,173 cr |
| Tax | ₹16,033 cr | ₹2,739 cr | ₹11,350 cr |
| Net profit to shareholders | ₹49,210 cr | ₹8,166 cr | ₹26,695 cr |
| Cash from operations | ₹52,094 cr | ₹15,316 cr | ₹1,22,230 cr |
| Capex | ₹4,146 cr | ₹9,678 cr | ₹46,714 cr |
| Dividends paid | ₹39,437 cr | ₹2,273 cr | ₹11,328 cr |
| Cash and short-term investments, year end | ₹41,373 cr | ₹5,234 cr | ₹50,198 cr |
| Total assets | ₹1,82,372 cr | ₹1,41,376 cr | ₹5,52,152 cr |
| Liabilities | ₹73,894 cr | ₹60,664 cr | ₹3,56,188 cr |
| Equity, shareholders and minority | ₹1,08,478 cr | ₹80,712 cr | ₹1,95,963 cr |
| Liabilities plus equity | ₹1,82,372 cr | ₹1,41,376 cr | ₹5,52,152 cr |
Statements: consolidated, for the year to 31 Mar 2026, as Yahoo Finance carries them, in Rs crore. Prices and market caps: NSE closes of 23 Oct 2026 via Yahoo Finance. Balance-sheet figures are at the year end while the market cap is today's, the usual mismatch in any quick EV.
Follow-ups
What they ask next
If you could only see one statement, which would you pick?
The cash flow statement is the usual answer: profit can be shaped by accounting choices, cash much less so, and it shows how the business funds itself. Some argue for the balance sheet, because it shows what the company owns and owes. Pick one and give the reason.
How can a profitable company run out of cash?
When profit is tied up in working capital: customers paying late, stock building up, as in the credit-sale walk-through above. Heavy capex and debt repayments do the same. Profit is not cash.
Where does a change in working capital show?
In operating cash flow. A rise in receivables or inventory uses cash; a rise in payables gives cash. On the balance sheet the same items move.
Why is depreciation added back in the cash flow statement?
It is a cost spread over an asset’s life with no cash going out that year. The cash went out when the asset was bought, and that shows as capex under investing.
Keep reading