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Buy Stock. Where the Money Goes
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This isn't nearly as bad as it looks. Let's follow some money through the company to show you what I mean.

A group of investors and bondholders (1) provide capital to a firm, either by buying shares in the company (stockholders) or by buying the company's bonds (bondholders). The company takes the money and buys fixed assets (2) such as machinery and buildings—and uses those assets to produce inventory (3). Some of the inventory is sold for cash (4), and some is sold on credit (5).

The credit sales are posted to "accounts receivable"—a fancy name for YOU—until the customer pays the firm (6). Once the firm has cash in hand, it can spend it in all sorts of ways. Some of it goes back into production (7), which means buying replacement raw materials to create more inventory, and some of it goes into investment (8), which means buying more machin­ery or building another factory. (In accounting lingo, you'll usually see any investment that purchases a tangible long-term asset such as a building or factory called "capital expenditure," or simply "capex.")

Another chunk of cash goes to Uncle Sam as taxes (9), and some may flow out as dividends to stockholders if the firm pays a dividend or as interest to bondholders (10) if the firm has debt.

That's really all there is to it. Cash flows in, and (you hope) cash flows out. Let's walk through a simplified company—Mike's Hot Dog Stand—to illustrate how all of this comes together. We'll use Mike's to introduce many of the specific line items in financial statements that tell us how well a com­pany is doing its core job, which is investing shareholders' money to generate a solid return.

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