How to Analyze a Cash Flow Statement Like a Hedge Fund Analyst
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- เผยแพร่เมื่อ 3 มิ.ย. 2024
- This video focuses on how to analyze a cash flow statement. Financial statement analysis is one of the most important aspect of investing. Along with the income statement and balance, the cash flow statement (statement of cash flows) are the three main financial statements that investors need to understand. The goal of this video is to serve as a guide on how to analyze financial statements and how to analyze stocks for beginners.
After watching this video, you will have a better understanding of the following topics: How to invest, how to invest in stocks, what is a cash flow statement, financial statement analysis, how to analyze stocks, how to read a cash flow statement, and much more.
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Just understood something in 16 minutes that my 12th grade teacher was trying to explain me for literally 6 months.. Really appreciated it.🙏🙏
You get thought financial analysis in 12th grade already? Lucky you.
I'm positive this was not thought in your high school. You'd need to learn basic accounting which in college is two full semesters. Analysis of financial statements is another full course in college.
@@WhyBecause.im in 10th grade and my business teacher teaches us all about income statements, balance sheets and cash flow statements and basically much things that are taught in college accounting 101 😊 it’s my favorite class that is soooo useful
😂😂 literally !
In india we have financial statements analysis from grade 12th
Title: "Mastering the Cash Flow Statement: A Comprehensive Guide for Investors"
Summary:
In this insightful video, the presenter delves into the importance of understanding and analyzing a company's cash flow statement, offering valuable insights and practical tips for investors of all levels. Here are the key takeaways:
1. **Cash Flow Statement Overview**: The cash flow statement summarizes the inflow and outflow of cash within a company. It provides a clear picture of how a company manages its cash, a critical factor in determining a stock's value.
2. **Three Sections of the Cash Flow Statement**: The cash flow statement is divided into three sections: operating activities, investing activities, and financing activities. Each section reveals different aspects of a company's financial health.
3. **Operating Activities**: This section reflects the cash generated from a company's core business operations. It includes receipts from sales, interest and income tax payments, expenses, and more. Understanding this section is crucial for evaluating a company's ability to generate cash from its operations.
4. **Depreciation and Amortization**: Depreciation is an essential concept to grasp. It represents the reduction in the value of assets over time. Importantly, depreciation is a non-cash expense, so it's added back to net income when calculating cash flow from operations.
5. **Stock-Based Compensation**: Companies often compensate employees with stock. Stock-based compensation is another non-cash expense and is added back to net income in the cash flow calculation.
6. **Net Change in Operating Assets and Liabilities**: This line item reflects changes in working capital, which is the cash needed for day-to-day operations. Understanding working capital changes is especially important for growing companies.
7. **Cash Flow from Operations**: This is a critical metric, representing the cash a company generates from its core operations. It's a key factor in determining a company's financial success.
8. **Free Cash Flow**: Free cash flow is calculated by subtracting capital expenditures (capex) from cash flow from operations. It's an essential metric for investors, as it indicates how much cash a company can potentially return to shareholders.
9. **Free Cash Flow Yield**: This metric, calculated by dividing free cash flow by the market capitalization, provides an important percentage indicating the company's financial health and attractiveness as an investment.
10. **Capex as a Percentage of Sales**: This measure helps evaluate a company's capital intensity by dividing net capex by total revenue. It varies by industry, with certain industries being more asset-intensive than others.
11. **Investing Activities**: This section includes purchases and sales of investments, acquisitions, and disposals of businesses. It reflects how a company invests its cash in assets and opportunities.
12. **Financing Activities**: This section covers cash raised from investors or banks and cash paid to shareholders, including dividends and share repurchases.
13. **Share Repurchases**: Share repurchases can be powerful for shareholders, as they increase earnings per share. They can contribute to long-term shareholder value.
14. **Dividends**: Dividend payments are a crucial consideration for investors, and consistent dividend growth is often viewed positively.
15. **Total Payout Ratio**: Calculating the total amount spent on share repurchases and dividends as a percentage of free cash flow provides insights into a company's dividend sustainability.
This comprehensive guide offers investors valuable insights into interpreting and analyzing a company's cash flow statement, enabling them to make informed investment decisions.
Simple and easy and beautiful analysis
Thank you
This video gives me so much clarity in analyzing a cash flow statement. I was struggling with this for weeks. Thank You, thank you, thank you!
This series has changed everything for me. Thank you! What helped me even more is re-listening to this video and your other ones in this series at a reduced playback speed of .75 %. It slows down the speed of speech so I'm able to really comprehend everything. I wrote notes down and now I know how to analyze a companies financial health.
Wow, I have been struggling for some time on dissecting the important parts of the Cash Flow Statement. This video was phenomenal as it was concise, highlighted high level metrics, and had some cool analysis equations that I will be adding to my investor toolkit!
Absolutely phenomenal work! I have been struggling to internalize the cash flow statement for a while but your explanation is simple and concise. Thank you!
Thank you, Dom! Glad the video was helpful for you 😊
Absolutely love this format and the way you explain these concepts. My education is in science and business/finance always seemed foreign to me. Now in my 30's looking to start understanding investing and this is sooo helpful. Definitely earned a like and subscribe from me!
Love, when people are doing something with Excellence!
So simply yet effectively explained. Thank you!
Hi, thank you so much for such informative videos. It would be great if you could also make a separate video on depreciation. Keep up the great work!
Your voice makes the information easier to absorb.
Thank you Ic for teaching most boring thing in investing 😉
Great video. I just started learning about financial statements and this has given me a great understanding of the cash flow statement. The statement can give great insight on an organization.
Phenomenal video! Usually I’m just a lurker with videos, not really engaging much at all. But this earned a like, subscribe, and comment from me. It’s nice to see not only detailed explanations of investment concepts but also real applications and examples. The value of this video is enormous, thank you for this.
Thank you, Alex! I truly do appreciate those kind words. I’m Looking forward to making more great and useful videos for you!
One up from me as well! I can't remember when's the last time I subscribed to a channel, not yet commented, but this one truly deserves it!
@@TheIlija995 thank you!!!
I can listen this voice all day!!
Who are you? I am so grateful for people like you! God Bless you.
Wonderfully clear explanation. Thank you.
Some of the items you highlighted in the video I couldn't find when I tried to analyze a company I want to invest into!
Extremely insightful and well detailed video. Great work👍
This is awesome! Would love more case studies of reading financial statements of real companies
The last calculation is really good
Thank you so much for this! I learnt so much!
This is gold! Thank you for this video
Thanks for the video. I like how you put real-world examples such as Warren Buffet and Coca- Cola. Makes the information easier to follow and more interesting.
Glad you enjoyed the video, Jonathan!
Very helpful to learn the basics!
Thanks, Allen!
@@InvestorCenter I have always confused what is a negative number for “issuance of common stock”, buyback or issuing more? When you said “negative is cash out, and positive is cash in”, it instantly clears my confusion. :)
My Thanks and Appreciation for simple example cash flow statement
Omggg I finally found it!!! I saw the first two parts and couldn’t find this for ages
I’m glad you found it!
Excellent video. Thankyou!
Awesome explanation, cheers!
Great explanation, thank you very much
I like your video presentation. It is informative too, at the same time. Thanks a lot for your guidance!
Now I remember why I dropped Accounting I do not have the head for this stuff. Great video!
this video is gold. Thank you!
Glad you enjoyed it!
Wow! 🤯 Very impressive video!
Thank you for such a decisive breakdown.
Im saving this one. 😊
Glad it was helpful!
Excellent
You said you can do 1 hour long video on depreciation! Please do! Thankyou for this video
Thank you for this video!
what an awesome video, thank you. Subscribed.
Really phenomenal video I've ever seen it's like a real investment course plss can u make video related to depreciation, amortization, and various valuation methods like DCF
Very helpful video. For those looking to learn more about investing A Teenager’s Guide on how to Invest Like Warren Buffett and Charlie Munger is a great book.
Thank you for the informative content!
Glad it was helpful!
it is full of knowledge and superb video.
Thanks for the kind words :)
Thanks a lot! It was quite useful!
Thank you for this informative video!
I appreciate the comment!
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● 0:00 - 0:10
Intro
• cash flow is important
• how to "analyse" company's cash flow statement
• the factors you should consider before investing
● 0:51 - 1:17
Why is the cash flow statement useful/important?
• understand how a company's "operations" are "running"
• where the company's money is coming from
• understand how the company's money is being "spent"
• tells you how much cash a business is "generating"
• the amount of cash a business is able to generate over its lifetime is what determines that company's stock price.
The more cash a stock is able to produce, the more that stock is going to be worth, all else being equal.
● 0:30 - 0:51, 1:17 -
• summarises the amount of cash that "enters" and "exits" a company
• positive number = cash entering
• negative number = cash exiting
• Statement is broken up into 3 distinct sections: "operating" activities, "investing" activities, and "financing" activities.
• operating activities includes any "sources" and "uses" of cash from "business activities". It shows how much cash is "generated" from a company's products or services.
• operating activities might include: receipts from sales of goods or services,
interest payments, income tax payments, payments made to suppliers (for goods and services used in production), salaries and wages to employees, rent payments, and any other type of "operating expense"
• 1:55 cash flows from investing activities includes any "sources" and "uses" of cash from a company's "investments"
• includes purchases of PPE, investments in other companies, money spent on acquiring entire companies (acquisitions)
• the "investment activies section" is almost always a negative number, especially for companies that are "growing" , because they are using the cash to "grow" the business through "investing" in things like new locations, new equipment to make more products, or even buying other companies.
• 2:23 cash flow from Financing activities includes the "sources" of cash from investors and/or banks, as well as the "uses" of cash "paid" to shareholders.
• includes payments of dividends, payments for stock repurchases, repayment of debt
• changes in cash flows from financing activities are cash "in" when "capital" is "raised" and cash "out" when "dividends" are "paid"
• so, if a company "issues" a "bond" to the "public", the company "receives" cash "financing", and that is reflected by a positive number on the cash flow statement. However, when the company "pays" back the money that it borrowed, that is reflected by a negative number on the cash flow statement.
● 3:35 - , 4:08 -
• Going through cash flow statement line by line.
• The important things an investor needs to watch out for.
• first line is company's net income. Net income = how much company made in profit.
• net income is "calculated" on a different financial statement called the income statement.
• after starting with net income at the top of the cash flow statement, the end goal of the operating activities section is to be able to "calculate", commonly referred to as for short.
In between, the net income and operating cash flow line, there's a few important items I'd like to draw your attention towards:
• non cash expenses
• Depreciation and amortization "line item". Usually for most companies, this is the largest number in this section of the cash flow statement.
• Depreciation means that you "write off" the "value" of an "asset" over its "expected" "useful life". The "value" of almost any asset "depreciates" over time, and you can "write off" a certain amount as an "expense" "against" taxes every year.
• So, for example, let's say Coca Cola buys a piece of "equipment" that "costs" $1000 that the company believes they will be able to use for 5 years - so its "useful life" is 5 years. This means that this specific piece of equipment depreciates at $200 every year. However, Coca Cola paid for the $1000 piece of equipment "in cash" "up front". So, the $200 annual depreciation expense is considered a "non cash expense", because "no additional cash" is "leaving" the business each year.
• As a result, depreciation and amortization expense for the year needs ot be "added back" to "net income" when we are "calculating" "cash from operations"
• 5:39 The next "line item" that is important to pay attention to is "stock-based compensation". This is when a company "pays" its employees in "stock" instead of "purely just" "cash".
• So, for example, let's say you work at Facebook. Each year you may get $150 000 in "cash" and another $50 000 in "stock" of the company. This is a way companies encourage employees to stay employed in the company for longer, and is very common in the tech industry. Coca Cola isn't a technology company, so this number for them is relatively low. But this is a very important item to consider if you are analysing a tech company.
• Just like depreciation, stock based compensation expense is considered a noncash expense. because no actual cash is "leaving" the business. So it also gets added back to net income to calculate "cash flow from operations"
• Jumping down the cash flow statement a bit, another important item is the " ". This is also referred to as the company's "". Think of this as the cash needed to "run" the "short term" "operations" of the business.
• Things such as "paying" "suppliers" and cash that a business is "owed" from its "customers", but "not yet paid".
• Typically, for companies that are "growing", this is a negative number on the cash flow statement, because more "cash" is needed to "manage" the "day to day operations" of the business as it is "growing". However, for more mature companies like Coca Cola this number can vary from being a cash "inflow" ( a positive number ) and a cash "outflow" ( a negative number ), depending on the year. As we see with coca cola, this line was a "source" of cash in 2020 and 2019 but a "use" of cash in 2018.
• 7:12
• Additionally, "cash flow from operations" is used to "calculate" a company's "free cash flow".
• "Free cash flow" is the single most important metric in evaluating a business. This is because the "value" of any "investment" whether it is a "stock", "apartment building" or "small business", is determined by "the amount of cash flow" the business is able to "generate" over its "life".
• In order to calculate FCF, we start with the "cash flow from operations" number. Then we "subtract out" what is referred to as "capital expenditures" or "capex". Capex is cash used by a company to acquire, upgrade, or maintain physical assets such as property, plants, buildings, technology, or equipment. Capex is often used to undertake new projects, or help the company grow, or even just
"maintain" its operations. Making capital expenditures on "fixed assets" can include repairing a roof, purchasing a piece of equipment, or building a new factory. So, if Coca Cola were to increase the size of one of its factories
Unfinished
Thank you for this great video!
What an amazing video, thanks for sharing
Interesting video as always! Keep up the work 🚀
Hlo rich daddy
Amazing. Please keep doing this.
Great video. Well done
Great
Love this video...thanks 👍
Thanks so much for this high value video!😭😭😭
Glad you enjoyed it, Allen!
I... Download it 😉.. Thank you.. Dear sister💕
Your presentation is good, as in easy to follow and seeming to make sense. I don’t have the background to disagree with anything you have put forth, but, using your methodology, how would Amazon looked as an investment a couple of years after going public?
Such a great video! Thank you!!
Thank you! Glad you enjoyed it, Brian
How to Read and Analyze a Cash Flow Statement like an Investment Analyst. I think it was a very well developed and debated topic, as an investment flow analyst must know how to carry out correct and accurate analyses.
Excellent!
Nice video! Don’t you use the maintenance capex for FCF calculations instead of just capex?
Awesome video! Thank you very much.
I appreciate the kind words! You are welcome
Great video....Thank you
very good, helpful. thank u
Great Job! Thanks for the tutorial.
Thank you!
Great video
First time, I have watched this your video and subscribed your channel. You've described cash flow statement in layman's terms.
Thank you for supporting the channel!
Excellent video, nicely laid out. The example you gave with Warren's stake in Coca-Cola growing as a result of share buy-backs is a bit confusing if we do not consider the shares issued over the years. Can an investors share holding grow over a period the company buys back shares?
Hi, is DCF the only method that you use in calculating intrinsic value? Thanks in advance
Hello, I have a question. In calculating the Free Cash Flow, were you substract Net Capex from CF from Operations, some Annual Reports already have a "Capital Expenditures" in the investing Activities of a Statement. Do we select that amount instead of Purchase of PP&E and disponsals or do we need to realize another equation?
At 14:09 when she calculates the net of stock repurchases and issuance, the +/- signs are reversed from what they are on the KO cashflow statement. For 2020, the amount for Issuance of Stock on the KO statement is 647, but when she calculates the net value she shows this as "-647". Similarly for stock repurchase, the KO cashflow statement for 2020 shows (118) and she shows it as "118". This also occurs for the amounts in 2018 and 2019. I don't understand why she calculates it this way, particularly since she also uses this net amount later in calculating the metric of taking this amount for net stock issuance/repurchase and dividing it by free cash flow.
BTW - I'm really enjoying learning from all 3 videos she has done on the different financial statements.
I had a hard time with this too. At the end of the day I guess the important thing is to have the same sign for dividends and repurchases and the opposite sign for issuances, which she does have. The way she labels it as “spent on repurchases” is also consistent with the positive number here. But again I had a hard time getting why the signs are flipped from the way they are on the KO cash flow statement.
It was really great and excellent the way you explained each every step, but I just wanted to request you a suggestion that please give the simplified examples of the companies with a little bit slow speed of explaining and please also highlight how much figure is considered good sign and perfect to invest in comparison to what the company;s current figure is ?. In general It was so better and informational for any investor and finance students. Thank You so much and really appreciate it.
😮
I like this channel. I am learning a lot everytime I watched a video. I wish your channel will grow more.
Thank you! I really appreciate that :)
@@InvestorCenter I shared this channel to my friends. It really help us in our investing decisions. Kudos
@@djben928 the support means a ton ❤️
Amazing content. Can you please do a video on DCF valuation. Thank you
Can you pls do a balance sheet one?!
Just found your channel and love it after one video!
That video is up next!
Great video.
Wow amazing content! Thank you so much
Thank you! I appreciate the kind words
Thank you 🙏
Thank you!
Amazing video. Can you explain why some public companies don't show "net change in assets & liabilities " (working capital) on their cash flow statements? Ive seen some that don't? Thank you!
Video on depreciation pls!
Thank you.
You are welcome!
i rly wish you woulda been my accounting professor
Thanks!
Thank you so much ❤️
Thanks, nice divulgative video, keep up!
Thank you for the kind words!
True . Nice video
Thanks for watching!
And where to get an information about options compensation? I know there are some resources with this insider data, but where to get it on SEC, from which files on the website and how to interpret?
Great video :) Question for you, if you don't mind. Up until now, two of the metrics I look at when valuating a business is 5 year average growth of Revenue and EBITDA. But I'm learning that it's better to look at FCF. However, I'm learning quickly that investments, share buy backs etc. can skew the average 5 year FCF growth if a company made a big investments or bought a lot of shares in 1 year. How can I most accurately determine a average 5 year growth rate for a company?
For example. If we look at MED. It looks like they did well if you only look at their Revenue and EBITDA - it increased from 2020 to 2021. But if you look at their FCF it declined significantly. So it negatively skews the 5 year average FCF growth rate completely (when in reality, investments and share buy backs are good for a company).
If I may help - check the trading assets (trade receivables + stock) and the trading liabilities (trade payables + accruals). You may likely see a huge growth in the trading assets, meaning revenue growth was based on credit and not cash payment, while they had to pay cash for trade liabilities (this should be low). If you go further to calculate the time it takes to buy stock/inventory, hold till sales, and collect payment on sales, you may notice that it takes longer than the time it takes to pay for the stock purchased. Therefore, FCF will be impacted negatively, if they are unable to collect on the receivables, even though revenue is growing. Hope this helps.
Wow 75K subscribers and 57K views in 9 days, that is some great viewer engagement. Really impressed me
Awesome content
Thank you!
just a question, for your model on total spent on repurchases according to the model there was more stock repurchase than stock issuance which is not what you said. I may be wrong, correct me if I am wrong
Can we expect the same analysis for balance sheet?
Next balance sheet
Should be coming soon!
Well, this will help
Great video. I am just at the beginning of my investment journey and your video helped me a lot! Thanks for that. However, I have one question. Why is the share issuances is a negative number in the cash flow statement? I thought when a company issuances the shares they raise money, hence increasing the cash. and when a company repurchases the stocks, they buy back the shares, and hence cash decreases. Thanks in advance!
I noticed the same. It is a shame you have not received an answer to your question, but you are correct !
You can see at 14:40 that the issuances are indeed a positive line item on the Cash Flow Statement and stock repurchases are negative. The other calculation that she is doing is for net share repurchase for which share repurchase is positive and share issuance is negative. Had this net share repurchase itself been a line item on the cash flow statement, it would have been subtracted from the cash flow from financing activities.
Thank
Is the Disposals of PP&E a cost of disposal or is it income, from a sale? Why is it positive?
Appreciate it.
Appreciate you watching the video!
Can you do a video for Balance Sheet?
you're doing God's work
Thank you!
Would you like doing a video on Buffett’s bet against hedge funds? Love your channel btw
Possibly! Thank you for the kind words :)
Hey, will there be a video about the Balance sheet in the future? Would be very interesting. Thank you
Yes! Working on that video now