It starts with revenue — all the money from sales. Subtract the cost of producing and you get gross profit. Subtract selling, marketing, research and administration and you get operating income — the profit from the business itself. Subtract financing and tax and you get net income. Net income divided by share count is earnings per share.

Always compare to the same quarter a year earlier rather than to the previous quarter, because most businesses are seasonal. A retailer always shows a strong fourth quarter — that isn't growth, that's the holidays.

The balance sheet is a snapshot at one instant: what the company has, what it owes, what's left for owners. That's where you check cash against debt, and how much of that debt comes due soon. The cash-flow statement is the least famous and the most important: it shows how much cash actually came in from operations, how much was invested, and how much was raised or returned to shareholders.

The rule that ties all three together: profit is an opinion, cash is a fact. A company can show handsome accounting profit while burning cash — and that happens far more often than people assume.

Companies publish two numbers: the accounting result under uniform rules, and the "adjusted" result management presents after removing items it considers one-off. Sometimes the adjustment is fair. A large, persistent gap between the two — especially when it comes every year from the same "one-off" items — is one of the clearest red flags there is.