Although all of the financial statements are important, many argue whether the balance sheet or the cash flow statement is the most important. The most common argument in support of the balance sheet is that it gives the broadest picture of the companys financial position. A comparison of assets to debt lets you know how leveraged the business is and hence whether or not bankruptcy is a concern. Managers, creditors, and investors (both creditors and owners of for-profit businesses) all are concerned with a businesss liabilities compared to its assets and equity. A strong equity position indicates long-term viability.

Others argue that the statement of cash flows is most important. They contend that no matter what is reported on the income statement or balance sheet, managers and investors are ultimately interested in how much cash the company is generating. In addition to serving as an indicator of financial health, the cash flow statement shows managers whether the business has cash to pay dividends or, for a not-for-profit business, to increase its mission capabilities. Managers, suppliers, employees, and other stakeholders all have a direct interest in whether the company is generating substantial cash flows and what it is doing with those flows.

What do you think? Is the balance sheet or statement of cash flows more important? What about the income statement? If you had to consider only one financial statement, which would it be?