Cash Flow Analysis

Overview

This skill provides a structured 5-step methodology to analyze a company's Statement of Cash Flows, enabling accurate assessment of financial health, earnings quality, and capital allocation strategy.

Analysis Workflow

Follow these steps sequentially when analyzing a cash flow statement:

1. Operating Activities Evaluation

Assess the core business's ability to generate cash.

• Look for non-cash adjustments (D&A, Stock-Based Compensation).
• Analyze Working Capital changes (Inventory, A/R, A/P).
• Reference: Use references/analysis-framework.md (Step 1) for detailed checks.

2. Investing Activities Analysis

Determine how the company is deploying capital for future growth.

• Prioritize Capital Expenditures (CapEx) vs. M&A activity.
• Reference: Use references/analysis-framework.md (Step 2).

3. Financing Activities Assessment

Review how the company funds itself and returns capital to investors.

• Track debt issuance/repayment and share buybacks/dividends.
• Reference: Use references/analysis-framework.md (Step 3).

4. Quantitative Metrics Calculation

Calculate key performance indicators to benchmark against industry standards.

• Calculate Free Cash Flow (FCF): Operating Cash Flow - CapEx.
• Analyze Earnings Quality: Operating Cash Flow / Net Income.
• Reference: See references/metrics-formulas.md for all formulas and benchmarks.

5. Synthesis & Profile Identification

Identify the company's "Cash Flow Profile" (Mature, Growth, or Struggling) and summarize findings.

• Reference: Use references/analysis-framework.md (Step 5).

Resources

• references/analysis-framework.md: Detailed step-by-step checklist for qualitative and quantitative analysis.
• references/metrics-formulas.md: Comprehensive list of formulas, significance, and industry benchmarks.