If you could only use 1 financial statement with 5 years of data, but were given information about dividends, share buybacks, and equity issuances, which would you use to evaluate an investment?

We should use the balance sheet if we have at least two years of data, as well as dividend information, share buybacks, and equity issuances. This is because you can effectively figure out the changes in cash flow and net income by comparing this year’s balance sheet with the previous year’s balance sheet.

The change in cash can be calculated as this year’s cash balance less last year’s cash balance.

If we know the depreciation and amortization rate (e.g. straight-line for 10 years), we can take this year’s PP&E and subtract last year’s PP&E, then add the depreciation and amortization expense to arrive at a capex number.

If we look at the changes in debt from one year to another, we can calculate the cash flows from new borrowings (debt goes up, cash inflow) or debt repayments (debt goes down, cash outflow).

Finally, we can find net income by taking this year’s shareholder’s equity less last year’s shareholder’s equity. Keep in mind that we can only do so because the question states we are given information on dividends (decreases shareholder’s equity), share buybacks (decreases shareholder’s equity), and equity issuances (increase shareholder’s equity). After backing out for these items, we can calculate net income by subtracting this year’s shareholder’s equity with last year’s shareholder’s equity. So current year’s net income = current year’s shareholder’s equity + dividends + sharebuybacks – equity issuances – last year’s shareholder’s equity.