Understanding Key Financial Terms
Before diving deeper into SEC filings, it helps to understand a few foundational concepts. These terms appear throughout 10-Ks, 10-Qs, and 8-Ks — and knowing them makes the filings far easier to interpret.
Revenue vs. Net Income
These two terms are often confused, but they measure very different things:
| Term | Meaning |
|---|---|
| Revenue | Total money the company brings in from selling products or services. |
| Net Income | What’s left after subtracting all expenses — the company’s actual profit. |
Revenue tells you how big the business is. Net income tells you how profitable it is. A company can have huge revenue and still lose money.
Operating Income vs. Net Income
Operating income focuses on the core business. Net income includes everything — even items unrelated to day‑to‑day operations.
| Term | Includes |
|---|---|
| Operating Income | Revenue minus operating expenses (labor, materials, marketing, etc.). |
| Net Income | Operating income plus/minus taxes, interest, one‑time gains/losses, and more. |
Assets, Liabilities, and Equity
These three concepts form the backbone of the balance sheet. They follow a simple but powerful equation:
• Assets — What the company owns
• Liabilities — What the company owes
• Equity — What’s left for shareholders after debts
This equation always balances. If it doesn’t, something is wrong.
Cash Flow vs. Profit
A company can be profitable on paper but still run out of cash. Cash flow measures the actual movement of money — not accounting assumptions.