Building Financial Statements

BusinessMath Quarterly Series

11 min read

Part 14 of 12-Week BusinessMath Series

What You’ll Learn

Creating Income Statements with revenue and expense accounts
Building Balance Sheets with assets, liabilities, and equity
Modeling Cash Flow Statements with operating, investing, and financing activities
Verifying the accounting equation (Assets = Liabilities + Equity)
Computing key metrics automatically from statements

The Problem

Financial statements are the foundation of business analysis. Every valuation, credit decision, and strategic plan starts with:

Income Statement: Is the company profitable?
Balance Sheet: What does the company own and owe?
Cash Flow Statement: Is the company generating cash?

Building these statements manually is tedious and error-prone. You need to:

Track accounts across multiple periods
Ensure accounts are properly classified
Calculate subtotals (gross profit, operating income, EBITDA)
Verify accounting equations balance
Compute ratios from the statements

You need a structured, type-safe way to model financial statements programmatically.

The Solution

BusinessMath provides IncomeStatement, BalanceSheet, and CashFlowStatement types that handle classification, computation, and validation automatically.

Creating an Entity

Every financial model starts with an entity:

import BusinessMath

let acme = Entity(
    id: "ACME001",
    primaryType: .ticker,
    name: "Acme Corporation",
    identifiers: [.ticker: "ACME"],
    currency: "USD"
)

Building an Income Statement

The Income Statement shows profitability over time:

// Define periods
let q1 = Period.quarter(year: 2025, quarter: 1)
let q2 = Period.quarter(year: 2025, quarter: 2)
let q3 = Period.quarter(year: 2025, quarter: 3)
let q4 = Period.quarter(year: 2025, quarter: 4)
let periods = [q1, q2, q3, q4]

// Revenue account
let revenue = try Account(
    entity: acme,
    name: "Product Revenue",
    incomeStatementRole: .productRevenue,
    timeSeries: TimeSeries(
        periods: periods,
        values: [1_000_000, 1_100_000, 1_200_000, 1_300_000]
    )
)

// Cost of Goods Sold
let cogs = try Account(
    entity: acme,
    name: "Cost of Goods Sold",
    incomeStatementRole: .costOfGoodsSold,
    timeSeries: TimeSeries(
        periods: periods,
        values: [400_000, 440_000, 480_000, 520_000]
    )
)

// Operating Expenses
let salaries = try Account(
    entity: acme,
    name: "Salaries",
    incomeStatementRole: .generalAndAdministrative,
    timeSeries: TimeSeries(
        periods: periods,
        values: [200_000, 200_000, 200_000, 200_000]
    )
)

let marketing = try Account(
    entity: acme,
    name: "Marketing",
    incomeStatementRole: .salesAndMarketing,
    timeSeries: TimeSeries(
        periods: periods,
        values: [50_000, 60_000, 70_000, 80_000]
    )
)

let depreciation = try Account(
    entity: acme,
    name: "Depreciation",
    incomeStatementRole: .depreciationAmortization,
    timeSeries: TimeSeries(
        periods: periods,
        values: [50_000, 50_000, 50_000, 50_000]
    )
)

// Interest and Taxes
let interestExpense = try Account(
    entity: acme,
    name: "Interest Expense",
    incomeStatementRole: .interestExpense,
    timeSeries: TimeSeries(
        periods: periods,
        values: [10_000, 10_000, 10_000, 10_000]
    )
)

let incomeTax = try Account(
    entity: acme,
    name: "Income Tax",
    incomeStatementRole: .incomeTaxExpense,
    timeSeries: TimeSeries(
        periods: periods,
        values: [60_000, 69_000, 78_000, 87_000]
    )
)

// Create Income Statement
let incomeStatement = try IncomeStatement(
    entity: acme,
    periods: periods,
    accounts: [revenue, cogs, salaries, marketing, depreciation, interestExpense, incomeTax]
)

// Access computed values
print("=== Q1 2025 Income Statement ===\n")
print("Revenue:\t\t\(incomeStatement.totalRevenue[q1]!.currency())")
print("COGS:\t\t\t(\(cogs.timeSeries[q1]!.currency()))")
print("Gross Profit:\t\t\(incomeStatement.grossProfit[q1]!.currency())")
print("  Gross Margin:\t\t\(incomeStatement.grossMargin[q1]!.percent(1))")
print()
print("Operating Expenses:\t(\((salaries.timeSeries[q1]! + marketing.timeSeries[q1]! + depreciation.timeSeries[q1]!).currency()))")
print("Operating Income:\t\(incomeStatement.operatingIncome[q1]!.currency())")
print("  Operating Margin:\t\(incomeStatement.operatingMargin[q1]!.percent(1))")
print()
print("EBITDA:\t\t\t\(incomeStatement.ebitda[q1]!.currency())")
print("  EBITDA Margin:\t\t\(incomeStatement.ebitdaMargin[q1]!.percent(1))")
print()
print("Interest Expense:\t(\(interestExpense.timeSeries[q1]!.currency()))")
print("Income Tax:\t\t(\(incomeTax.timeSeries[q1]!.currency()))")
print("Net Income:\t\t\(incomeStatement.netIncome[q1]!.currency())")
print("  Net Margin:\t\t\(incomeStatement.netMargin[q1]!.percent(1))")

Output:

=== Q1 2025 Income Statement ===

Revenue:		$1,000,000
COGS:			($400,000)
Gross Profit:		$600,000
  Gross Margin:		60.0%

Operating Expenses:	($300,000)
Operating Income:	$300,000
  Operating Margin:	30.0%

EBITDA:			$350,000
  EBITDA Margin:		35.0%

Interest Expense:	($10,000)
Income Tax:		($60,000)
Net Income:		$230,000
  Net Margin:		23.0%

The power: Income Statement automatically computes gross profit, operating income, EBITDA, and all margins. No manual calculations.

Building a Balance Sheet

The Balance Sheet shows financial position:

// Assets
let cash = try Account(
    entity: acme,
    name: "Cash and Equivalents",
    balanceSheetRole: .cashAndEquivalents,
    timeSeries: TimeSeries(
        periods: periods,
        values: [500_000, 600_000, 750_000, 900_000]
    )
)

let receivables = try Account(
    entity: acme,
    name: "Accounts Receivable",
    balanceSheetRole: .accountsReceivable,
    timeSeries: TimeSeries(
        periods: periods,
        values: [300_000, 330_000, 360_000, 390_000]
    )
)

let inventory = try Account(
    entity: acme,
    name: "Inventory",
    balanceSheetRole: .inventory,
    timeSeries: TimeSeries(
        periods: periods,
        values: [200_000, 220_000, 240_000, 260_000]
    )
)

let ppe = try Account(
    entity: acme,
    name: "Property, Plant & Equipment",
    balanceSheetRole: .propertyPlantEquipment,
    timeSeries: TimeSeries(
        periods: periods,
        values: [1_000_000, 980_000, 960_000, 940_000]
    )
)

// Liabilities
let payables = try Account(
    entity: acme,
    name: "Accounts Payable",
    balanceSheetRole: .accountsPayable,
    timeSeries: TimeSeries(
        periods: periods,
        values: [150_000, 165_000, 180_000, 195_000]
    )
)

let longTermDebt = try Account(
    entity: acme,
    name: "Long-term Debt",
    balanceSheetRole: .longTermDebt,
    timeSeries: TimeSeries(
        periods: periods,
        values: [500_000, 500_000, 500_000, 500_000]
    )
)

// Equity
let commonStock = try Account(
    entity: acme,
    name: "Common Stock",
    balanceSheetRole: .commonStock,
    timeSeries: TimeSeries(
        periods: periods,
        values: [1_000_000, 1_000_000, 1_000_000, 1_000_000]
    )
)

let retainedEarnings = try Account(
    entity: acme,
    name: "Retained Earnings",
    balanceSheetRole: .retainedEarnings,
    timeSeries: TimeSeries(
        periods: periods,
        values: [350_000, 465_000, 630_000, 805_000]
    )
)

// Create Balance Sheet
let balanceSheet = try BalanceSheet(
    entity: acme,
    periods: periods,
    accounts: [cash, receivables, inventory, ppe, payables, longTermDebt, commonStock, retainedEarnings]
)

// Print Balance Sheet
print("\n=== Q1 2025 Balance Sheet ===\n")
print("ASSETS")
print("Current Assets:")
print("  Cash:\t\t\t\(cash.timeSeries[q1]!.currency())")
print("  Receivables:\t\t\(receivables.timeSeries[q1]!.currency())")
print("  Inventory:\t\t\(inventory.timeSeries[q1]!.currency())")
print("  Total Current:\t\(balanceSheet.currentAssets[q1]!.currency())")
print()
print("Fixed Assets:")
print("  PP&E:\t\t\t\(ppe.timeSeries[q1]!.currency())")
print()
print("Total Assets:\t\t\(balanceSheet.totalAssets[q1]!.currency())")
print()
print("LIABILITIES")
print("Current Liabilities:")
print("  Payables:\t\t\(payables.timeSeries[q1]!.currency())")
print()
print("Long-term Liabilities:")
print("  Debt:\t\t\t\(longTermDebt.timeSeries[q1]!.currency())")
print()
print("Total Liabilities:\t\(balanceSheet.totalLiabilities[q1]!.currency())")
print()
print("EQUITY")
print("  Common Stock:\t\t\(commonStock.timeSeries[q1]!.currency())")
print("  Retained Earnings:\t\(retainedEarnings.timeSeries[q1]!.currency())")
print("Total Equity:\t\t\(balanceSheet.totalEquity[q1]!.currency())")
print()
print("Total Liab + Equity:\t\((balanceSheet.totalLiabilities[q1]! + balanceSheet.totalEquity[q1]!).currency()))")

// Verify accounting equation
let assets = balanceSheet.totalAssets[q1]!
let liabilities = balanceSheet.totalLiabilities[q1]!
let equity = balanceSheet.totalEquity[q1]!

print("\n✓ Balance Check: Assets (\(assets.currency())) = Liabilities + Equity (\((liabilities + equity).currency()))")
print("  Balanced: \(assets == liabilities + equity)")

// Calculate ratios
print("\nKey Ratios:")
print("  Current Ratio:\t\t\(balanceSheet.currentRatio[q1]!.number(2))x")
print("  Debt-to-Equity:\t\t\(balanceSheet.debtToEquity[q1]!.number(2))x")
print("  Equity Ratio:\t\t\(balanceSheet.equityRatio[q1]!.percent(1))")

Output:

=== Q1 2025 Balance Sheet ===

ASSETS
Current Assets:
  Cash:			$500,000
  Receivables:		$300,000
  Inventory:		$200,000
  Total Current:	$1,000,000

Fixed Assets:
  PP&E:			$1,000,000

Total Assets:		$2,000,000

LIABILITIES
Current Liabilities:
  Payables:		$150,000

Long-term Liabilities:
  Debt:			$500,000

Total Liabilities:	$650,000

EQUITY
  Common Stock:		$1,000,000
  Retained Earnings:	$350,000
Total Equity:		$1,350,000

Total Liab + Equity:	$2,000,000

✓ Balance Check: Assets ($2,000,000) = Liabilities + Equity ($2,000,000)
  Balanced: true

Key Ratios:
  Current Ratio:		6.67x
  Debt-to-Equity:		0.37x
  Equity Ratio:		67.5%

The insight: Balance Sheet automatically validates Assets = Liabilities + Equity and computes liquidity/leverage ratios.

Linking Statements Together

Retained Earnings bridges Income Statement and Balance Sheet:

// Verify retained earnings flow
let beginningRE = retainedEarnings.timeSeries[q1]!  // $350,000
let netIncome = incomeStatement.netIncome[q1]!      // $230,000 (calculated earlier)
let dividends = 0.0  // No dividends paid in Q1
let endingRE = retainedEarnings.timeSeries[q2]!     // $465,000

let calculatedEndingRE = beginningRE + netIncome - dividends

print("\n=== Retained Earnings Reconciliation ===")
print("Beginning (Q1): \(beginningRE.currency())")
print("+ Net Income:   \(netIncome.currency())")
print("- Dividends:    \(dividends.currency())")
print("= Ending (Q2):  \(calculatedEndingRE.currency())")
print("\nActual Q2 RE:   \(endingRE.currency())")
print("Difference:     \((endingRE - calculatedEndingRE).currency())")

This links the statements: Net income flows from Income Statement → Retained Earnings on Balance Sheet.

Try It Yourself

Click to expand full playground code

import BusinessMath

let acme = Entity(
	id: "ACME001",
	primaryType: .ticker,
	name: "Acme Corporation",
	identifiers: [.ticker: "ACME"],
	currency: "USD"
)

	// Define periods
	let q1 = Period.quarter(year: 2025, quarter: 1)
	let q2 = Period.quarter(year: 2025, quarter: 2)
	let q3 = Period.quarter(year: 2025, quarter: 3)
	let q4 = Period.quarter(year: 2025, quarter: 4)
	let periods = [q1, q2, q3, q4]

	// Revenue account
	let revenue = try Account(
		entity: acme,
		name: "Product Revenue",
		incomeStatementRole: .productRevenue,
		timeSeries: TimeSeries(
			periods: periods,
			values: [1_000_000, 1_100_000, 1_200_000, 1_300_000]
		)
	)

	// Cost of Goods Sold
	let cogs = try Account(
		entity: acme,
		name: "Cost of Goods Sold",
		incomeStatementRole: .costOfGoodsSold,
		timeSeries: TimeSeries(
			periods: periods,
			values: [400_000, 440_000, 480_000, 520_000]
		)
	)

	// Operating Expenses
	let salaries = try Account(
		entity: acme,
		name: "Salaries",
		incomeStatementRole: .generalAndAdministrative,
		timeSeries: TimeSeries(
			periods: periods,
			values: [200_000, 200_000, 200_000, 200_000]
		)
	)

	let marketing = try Account(
		entity: acme,
		name: "Marketing",
		incomeStatementRole: .salesAndMarketing,
		timeSeries: TimeSeries(
			periods: periods,
			values: [50_000, 60_000, 70_000, 80_000]
		)
	)

	let depreciation = try Account(
		entity: acme,
		name: "Depreciation",
		incomeStatementRole: .depreciationAmortization,
		timeSeries: TimeSeries(
			periods: periods,
			values: [50_000, 50_000, 50_000, 50_000]
		)
	)

	// Interest and Taxes
	let interestExpense = try Account(
		entity: acme,
		name: "Interest Expense",
		incomeStatementRole: .interestExpense,
		timeSeries: TimeSeries(
			periods: periods,
			values: [10_000, 10_000, 10_000, 10_000]
		)
	)

	let incomeTax = try Account(
		entity: acme,
		name: "Income Tax",
		incomeStatementRole: .incomeTaxExpense,
		timeSeries: TimeSeries(
			periods: periods,
			values: [60_000, 69_000, 78_000, 87_000]
		)
	)

	// Create Income Statement
	let incomeStatement = try IncomeStatement(
		entity: acme,
		periods: periods,
		accounts: [revenue, cogs, salaries, marketing, depreciation, interestExpense, incomeTax]
	)

	// Access computed values
	print("=== Q1 2025 Income Statement ===\n")
	print("Revenue:\t\t\(incomeStatement.totalRevenue[q1]!.currency())")
	print("COGS:\t\t\t(\(cogs.timeSeries[q1]!.currency()))")
	print("Gross Profit:\t\t\(incomeStatement.grossProfit[q1]!.currency())")
	print("  Gross Margin:\t\t\(incomeStatement.grossMargin[q1]!.percent(1))")
	print()
	print("Operating Expenses:\t(\((salaries.timeSeries[q1]! + marketing.timeSeries[q1]! + depreciation.timeSeries[q1]!).currency()))")
	print("Operating Income:\t\(incomeStatement.operatingIncome[q1]!.currency())")
	print("  Operating Margin:\t\(incomeStatement.operatingMargin[q1]!.percent(1))")
	print()
	print("EBITDA:\t\t\t\(incomeStatement.ebitda[q1]!.currency())")
	print("  EBITDA Margin:\t\t\(incomeStatement.ebitdaMargin[q1]!.percent(1))")
	print()
	print("Interest Expense:\t(\(interestExpense.timeSeries[q1]!.currency()))")
	print("Income Tax:\t\t(\(incomeTax.timeSeries[q1]!.currency()))")
	print("Net Income:\t\t\(incomeStatement.netIncome[q1]!.currency())")
	print("  Net Margin:\t\t\(incomeStatement.netMargin[q1]!.percent(1))")


	// Assets
	let cash = try Account(
		entity: acme,
		name: "Cash and Equivalents",
		balanceSheetRole: .cashAndEquivalents,
		timeSeries: TimeSeries(
			periods: periods,
			values: [500_000, 600_000, 750_000, 900_000]
		)
	)

	let receivables = try Account(
		entity: acme,
		name: "Accounts Receivable",
		balanceSheetRole: .accountsReceivable,
		timeSeries: TimeSeries(
			periods: periods,
			values: [300_000, 330_000, 360_000, 390_000]
		)
	)

	let inventory = try Account(
		entity: acme,
		name: "Inventory",
		balanceSheetRole: .inventory,
		timeSeries: TimeSeries(
			periods: periods,
			values: [200_000, 220_000, 240_000, 260_000]
		)
	)

	let ppe = try Account(
		entity: acme,
		name: "Property, Plant & Equipment",
		balanceSheetRole: .propertyPlantEquipment,
		timeSeries: TimeSeries(
			periods: periods,
			values: [1_000_000, 980_000, 960_000, 940_000]
		)
	)

	// Liabilities
	let payables = try Account(
		entity: acme,
		name: "Accounts Payable",
		balanceSheetRole: .accountsPayable,
		timeSeries: TimeSeries(
			periods: periods,
			values: [150_000, 165_000, 180_000, 195_000]
		)
	)

	let longTermDebt = try Account(
		entity: acme,
		name: "Long-term Debt",
		balanceSheetRole: .longTermDebt,
		timeSeries: TimeSeries(
			periods: periods,
			values: [500_000, 500_000, 500_000, 500_000]
		)
	)

	// Equity
	let commonStock = try Account(
		entity: acme,
		name: "Common Stock",
		balanceSheetRole: .commonStock,
		timeSeries: TimeSeries(
			periods: periods,
			values: [1_000_000, 1_000_000, 1_000_000, 1_000_000]
		)
	)

	let retainedEarnings = try Account(
		entity: acme,
		name: "Retained Earnings",
		balanceSheetRole: .retainedEarnings,
		timeSeries: TimeSeries(
			periods: periods,
			values: [350_000, 465_000, 630_000, 805_000]
		)
	)

	// Create Balance Sheet
	let balanceSheet = try BalanceSheet(
		entity: acme,
		periods: periods,
		accounts: [cash, receivables, inventory, ppe, payables, longTermDebt, commonStock, retainedEarnings]
	)

	// Print Balance Sheet
	print("\n=== Q1 2025 Balance Sheet ===\n")
	print("ASSETS")
	print("Current Assets:")
	print("  Cash:\t\t\t\(cash.timeSeries[q1]!.currency())")
	print("  Receivables:\t\t\(receivables.timeSeries[q1]!.currency())")
	print("  Inventory:\t\t\(inventory.timeSeries[q1]!.currency())")
	print("  Total Current:\t\(balanceSheet.currentAssets[q1]!.currency())")
	print()
	print("Fixed Assets:")
	print("  PP&E:\t\t\t\(ppe.timeSeries[q1]!.currency())")
	print()
	print("Total Assets:\t\t\(balanceSheet.totalAssets[q1]!.currency())")
	print()
	print("LIABILITIES")
	print("Current Liabilities:")
	print("  Payables:\t\t\(payables.timeSeries[q1]!.currency())")
	print()
	print("Long-term Liabilities:")
	print("  Debt:\t\t\t\(longTermDebt.timeSeries[q1]!.currency())")
	print()
	print("Total Liabilities:\t\(balanceSheet.totalLiabilities[q1]!.currency())")
	print()
	print("EQUITY")
	print("  Common Stock:\t\t\(commonStock.timeSeries[q1]!.currency())")
	print("  Retained Earnings:\t\(retainedEarnings.timeSeries[q1]!.currency())")
	print("Total Equity:\t\t\(balanceSheet.totalEquity[q1]!.currency())")
	print()
print("Total Liab + Equity:\t\((balanceSheet.totalLiabilities[q1]! + balanceSheet.totalEquity[q1]!).currency()))")

	// Verify accounting equation
	let assets = balanceSheet.totalAssets[q1]!
	let liabilities = balanceSheet.totalLiabilities[q1]!
	let equity = balanceSheet.totalEquity[q1]!

	print("\n✓ Balance Check: Assets (\(assets.currency())) = Liabilities + Equity (\((liabilities + equity).currency()))")
	print("  Balanced: \(assets == liabilities + equity)")

	// Calculate ratios
	print("\nKey Ratios:")
	print("  Current Ratio:\t\t\(balanceSheet.currentRatio[q1]!.number(2))x")
	print("  Debt-to-Equity:\t\t\(balanceSheet.debtToEquity[q1]!.number(2))x")
	print("  Equity Ratio:\t\t\(balanceSheet.equityRatio[q1]!.percent(1))")

	// Verify retained earnings flow
	let beginningRE = retainedEarnings.timeSeries[q1]!  // $350,000
	let netIncome = incomeStatement.netIncome[q1]!      // $230,000 (calculated earlier)
	let dividends = 0.0  // No dividends paid in Q1
	let endingRE = retainedEarnings.timeSeries[q2]!     // $465,000

	let calculatedEndingRE = beginningRE + netIncome - dividends

	print("\n=== Retained Earnings Reconciliation ===")
	print("Beginning (Q1): \(beginningRE.currency())")
	print("+ Net Income:   \(netIncome.currency())")
	print("- Dividends:    \(dividends.currency())")
	print("= Ending (Q2):  \(calculatedEndingRE.currency())")
	print("\nActual Q2 RE:   \(endingRE.currency())")
	print("Difference:     \((endingRE - calculatedEndingRE).currency())")

→ Full API Reference: BusinessMath Docs – 3.5 Financial Statements

Modifications to try:

Add a Cash Flow Statement with operating, investing, and financing activities
Model multiple years of annual statements
Create pro forma statements for forecasting

Real-World Application

Every three-statement model starts here:

Investment banking: Modeling LBO returns
Corporate finance: Budgeting and planning
Equity research: Forecasting earnings
Credit analysis: Assessing solvency

BusinessMath makes statement modeling type-safe, validated, and composable.

★ Insight ─────────────────────────────────────

Why Use Role Enums Instead of Generic Types?

You could use generic type: .expense for all expenses.

But role-specific enums provide:

Explicit classification: incomeStatementRole: .costOfGoodsSold makes intent clear
Type safety: Can’t accidentally treat COGS as operating expense
Automatic aggregation: Multiple accounts with same role aggregate automatically
Multi-role capability: Same account (e.g., D&A) can have both Income Statement and Cash Flow roles
Statement validation: Ensures only valid roles are used per statement type

This prevents errors like classifying interest as operating expense or mixing incompatible accounts.

─────────────────────────────────────────────────

📝 Development Note

The hardest part of financial statement modeling was deciding: How much abstraction?

We could have made a single FinancialStatements class with all three statements bundled. But different analyses need different statements:

Valuation: Needs Income Statement and Cash Flow Statement
Credit analysis: Needs Balance Sheet and Cash Flow Statement
Profitability: Needs only Income Statement

We chose separate statement types that compose when needed. More flexible, slightly more verbose.

Related Methodology: The Master Plan (Week 3) - Managing API surface area

Next Steps

Coming up next: Lease Accounting (Friday) - IFRS 16 / ASC 842 lease modeling with right-of-use assets and lease liabilities.

Next week: Week 5 explores loans, investments, and valuations.

Series Progress:

Week: 4/12
Posts Published: 14/~48
Topics Covered: Foundation + Analysis + Operational + Financial Statements (in progress)
Playgrounds: 13 available

Tagged with: financial-analysis