In order to measure an entity's performance, we really need to look at its financial statements. Let's use an example. We could have a brand new entity or company set up and some shareholders invest some cash in the business. They buy some shares and cash gets invested. Next up, that cash is used to buy some operating assets. Maybe the company buys some machines. Already we've had a lot of transactions go on. We've had shares purchased. We've then had cash spent and instead be replaced by machinery. All of this will go in a balance sheet, which records the company's assets, liabilities, and equity. Now the company starts to trade and the machine is used to make some products and the company sells those products. Luckily, it makes some profits. Fantastic news, the assets produce profits. All of this will be recorded in the income statements. The income statements records any sales that are made less any associated expenses with those sales. Great, so the company has made some profits but that doesn't necessarily mean it's made me cash. We have to have the customers actually pay their bills before we get any cash in. That means we need a separate statement for cash flows and that's called the cash flow statement. This will look at actual cash flows that come in, for instance, when customers pay their bills, and actual cash flows that go out. Great, the company's got some cash now. It now needs to decide what to do with that cash. It could reinvest that cash back into the business. And just as what happened when the shareholders invested, the cash went in, it went onto the balance sheet, any reinvested cash also goes onto the balance sheet. Alternatively, the company could decide to pay that cash to the shareholders. That will be returning it to shareholders as a dividend. So there are a lot of transactions that happen in the company and in order to measure its performance, we have to look at those three financial statements, the balance sheet, the income statements, and cash flow statements.