The three statements

Target earned $3,705M last year and its cash balance went up $726M. Both numbers are audited and both are correct. The difference between them is not an error, and chasing it down is most of what learning accounting turns out to be. Three statements exist because a business has three separate questions to answer, and no single number answers more than one of them.

The income statement asks whether the year went well

It runs on accrual accounting, which means revenue appears when the company earns it and costs appear when the company incurs them, whatever month the money moves. That decision is the source of everything confusing about accounting and also the reason accounting is useful. A retailer that ships in January and collects in March did the work in January.

Target Corporation, Form 10-K for Fiscal 2025, year ended 2026-01-31, filed 2026-03-11. Accession 0000027419-26-000016.

Read it as a set of subtractions, each one answering a narrower question. Gross profit of $29,269M on $104,780M of revenue is a 27.9% margin, and that is a statement about the products: what Target buys things for and what it sells them for. Take out the cost of running the stores and the head office and you get operating income of $5,117M, a 4.9% margin, which is a statement about the business. Take out interest and you have measured what is left after the lenders, and after tax you have $3,705M for shareholders.

Four and nine tenths percent is thin. It means a single point of gross margin is worth roughly a fifth of operating profit, and it is why retail earnings move so violently on demand that barely moved. Knowing the margin tells you how much room the business has to be wrong.

The balance sheet asks what is left standing

Not a period, a day. Everything on it is a level at one instant, which is why comparing a balance sheet number to an income statement number requires care: one is a stock and one is a flow.

$21,230M of current liabilities plus $22,095M of noncurrent plus $16,165M of equity is $59,490M, which is exactly total assets. The identity holds by construction, which is precisely why it is worth checking. It catches almost every modeling mistake you will make.

Two numbers here are worth staring at. The first is shareholders' equity of $16,165M against a market value near $69B. Book equity is historical cost minus accumulated depreciation, so it records what things were bought for, not what the business is worth. Anyone who tells you a stock is cheap because it trades near book value is making a claim about the assets, and they should say which ones.

The second is that $12,622M of accounts payable slightly exceeds $12,304M of inventory. Target's suppliers are, in aggregate, funding everything on its shelves. Retail runs this way by design, and it is why a growing chain can open stores without raising money to stock them.

The cash flow statement asks where the money actually went

It starts at net income and undoes every accrual until what is left is cash. Three sections: operating, which is the business; investing, which is buying and selling long-lived things; financing, which is dealing with lenders and shareholders.

What each statement cannot tell you

The income statement cannot tell you whether the company can pay its bills. A firm can post record profit and default the same quarter, because profit is an opinion about timing and payroll is not.

The balance sheet cannot tell you whether the assets are worth anything. Goodwill sits at $631M because that is what was paid for something once. Property sits at cost less accumulated depreciation, which is a formula, not an appraisal.

The cash flow statement cannot tell you whether the year was good. A company that sells its head office and stops replacing equipment will report excellent cash flow while quietly liquidating itself. Read it with the income statement and you can see that happening. Read it alone and you cannot.

So you do not pick one. You read them against each other, and you pay attention to the places where they disagree.