Why is the examination of the balance sheet and income statement only

Why is the examination of the balance sheet and income statement only not an adequate evaluation of a firm? What else should be done?

What will be an ideal response?

ANSWER

The most obvious part missing is an examination of the statement of cash flows. Understanding cash flow statements helps identify the extent to which cash was generate from operating activities, how much cash was invested, and how much cash was used to finance the activities with which the firm was involved.