How to Analyze a Cash Flow Statement Like a Hedge Fund Analyst

[@InvestorCenter]

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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.🙏🙏

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You get thought financial analysis in 12th grade already? Lucky you.

[@MrSupernova111]

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.

[@emmakate2376]

@@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

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In india we have financial statements analysis from grade 12th

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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.

[@jakestokes1177]

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!

[@domceja62]

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!

[@InvestorCenter]

Thank you, Dom! Glad the video was helpful for you 😊

[@AlexMartinez-ew4iz]

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.

[@InvestorCenter]

Thank you, Alex! I truly do appreciate those kind words. I’m Looking forward to making more great and useful videos for you!

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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!

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@@TheIlija995 thank you!!!

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Thank you Ic for teaching most boring thing in investing 😉

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Love, when people are doing something with Excellence!

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Omggg I finally found it!!! I saw the first two parts and couldn’t find this for ages

[@InvestorCenter]

I’m glad you found it!

[@Unknowledgeable1]

🏦 🏦 🏦 🏦 🏦 🏦 🏦 🏦 🏦 🏦 🏦 🏦 🏦 ● 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!

[@jonathanlarco2453]

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.

[@InvestorCenter]

Glad you enjoyed the video, Jonathan!

[@BrendaBonitwQ]

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I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second daughter. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks...

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I can listen this voice all day!!

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Now I remember why I dropped Accounting I do not have the head for this stuff. Great video!

[@reeyazesack503]

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!

[@JesseHendrickson-m3r]

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!

[@gloriawitek6401]

I understood your video very well. While walking on my treadmill. Thank you

[@sandywang8992]

Thanks!

[@InvestorCenter]

Thank you so much ❤️

[@anhtqyrc]

Your voice makes the information easier to absorb.

[@DarrylRenken]

Absolutely understanding!Thank you so much!It was really helpful.

[@brainchilddesigner]

Wow! 🤯 Very impressive video! Thank you for such a decisive breakdown. Im saving this one. 😊

[@InvestorCenter]

Glad it was helpful!

[@VasQuezadilla]

This is awesome! Would love more case studies of reading financial statements of real companies

[@lunamorris2091]

I like your video presentation. It is informative too, at the same time. Thanks a lot for your guidance!

[@SamZaidan-s8q]

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!

[@Allen-L-Canada]

Very helpful to learn the basics!

[@InvestorCenter]

Thanks, Allen!

[@Allen-L-Canada]

@@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. :)

[@shabchique7149]

You're such a good teacher! 👏

[@SXB1261]

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.

[@ghmohamed]

Simple and easy and beautiful analysis Thank you

[@shikharverma4183]

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!

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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.

[@IsaacMyers-xq4iv]

So simply yet effectively explained. Thank you!

[@bingham7957]

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.

[@Icthi]

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.

[@kristianoliverie2378]

This is gold! Thank you for this video

[@jaehus1971]

Excellent video. Thank you !

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Extremely insightful and well detailed video. Great work👍

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this video is gold. Thank you!

[@InvestorCenter]

Glad you enjoyed it!

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Interesting video as always! Keep up the work 🚀

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Hlo rich daddy

[@PeakperformerEmil]

The last calculation is really good

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Thank you! I really appreciate that :)

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@@djben928 the support means a ton ❤️

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it is full of knowledge and superb video.

[@InvestorCenter]

Thanks for the kind words :)

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Great Job! Thanks for the tutorial.

[@InvestorCenter]

Thank you!

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Thank you so much for this! I learnt so much!

[@scottcardais3560]

Wonderfully clear explanation. Thank you.

[@todd-7819]

Excellent video. Thankyou!

[@tarunkumar877]

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.

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😮

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Awesome explanation, cheers!

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Thank you for the informative content!

[@InvestorCenter]

Glad it was helpful!

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what an awesome video, thank you. Subscribed.

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First time, I have watched this your video and subscribed your channel. You've described cash flow statement in layman's terms.

[@InvestorCenter]

Thank you for supporting the channel!

[@gunsietysantosh5874]

My Thanks and Appreciation for simple example cash flow statement

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Thanks so much for this high value video!😭😭😭

[@InvestorCenter]

Glad you enjoyed it, Allen!

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Thanks a lot! It was quite useful!

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Great explanation, thank you very much

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Great video. Well done

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Amazing. Please keep doing this.

[@abirchatterjee8131]

You said you can do 1 hour long video on depreciation! Please do! Thankyou for this video

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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

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Such a great video! Thank you!!

[@InvestorCenter]

Thank you! Glad you enjoyed it, Brian

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I... Download it 😉.. Thank you.. Dear sister💕

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Awesome content

[@InvestorCenter]

Thank you!

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Great video.

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Awesome video! Thank you very much.

[@InvestorCenter]

I appreciate the kind words! You are welcome

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Great video

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Just amazing.

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Wow 75K subscribers and 57K views in 9 days, that is some great viewer engagement. Really impressed me

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Thanks, nice divulgative video, keep up!

[@InvestorCenter]

Thank you for the kind words!

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Thank you for this video!

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Excellent!

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i rly wish you woulda been my accounting professor

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Thank you 🙏

[@InvestorCenter]

Thank you!

[@FritzEwert516]

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?

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What an amazing video, thanks for sharing

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Love this video...thanks 👍

[@InvestorCenter]

I just uploaded the spreadsheets I used in this video to my Patreon. My Patreon is where I will be uploading all of my analysis tools and spreadsheets. Check it out here: www.patreon.com/user?u=38414104

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Do you have a LinkedIn Profile?

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0cg

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True . Nice video

[@InvestorCenter]

Thanks for watching!

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very good, helpful. thank u

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you're doing God's work

[@InvestorCenter]

Thank you!

[@robertschwagerl3842]

Great video....Thank you

[@tugdualchitrit4426]

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

[@wlays1]

Wow amazing content! Thank you so much

[@InvestorCenter]

Thank you! I appreciate the kind words

[@josephcarbone5379]

Excellent

[@killerscott2197]

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.

[@canaldoaalves]

So amazing

[@BBFletcher4202]

Appreciate it.

[@InvestorCenter]

Appreciate you watching the video!

[@realtorrasheeddubai]

Rental properties can provide a steady cash flow. The average return on investment (ROI) for real estate is higher than many other asset classes, often yielding 8-12% annually.

[@irvinedania2735]

Can you do an analyze statements like a credit/ debt investment firm?

[@francescobullo8272]

Would you like doing a video on Buffett’s bet against hedge funds? Love your channel btw

[@InvestorCenter]

Possibly! Thank you for the kind words :)

[@carloslongo53]

Nice video! Don’t you use the maintenance capex for FCF calculations instead of just capex?

[@estebanborjes9097]

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?

[@danny100d]

Thank you.

[@InvestorCenter]

You are welcome!

[@seanzaid]

Video on depreciation pls!

[@rammandir6928]

Can u taught us some deep study on Cost drivers and revenue drivers modelling and analysisi

[@CYQ776]

Is the Disposals of PP&E a cost of disposal or is it income, from a sale? Why is it positive?

[@albertb.8123]

Amazing content. Can you please do a video on DCF valuation. Thank you

[@Torotero]

amazing video,, thanks for sharing. may i know where u come from? is it from uk ?

[@InvestorCenter]

The US

[@naibub233]

Hey, will there be a video about the Balance sheet in the future? Would be very interesting. Thank you

[@InvestorCenter]

Yes! Working on that video now

[@xsdfghjkhvcbj]

Quite a few mistakes here towards the end but largely a good intro vid. Biggest one that bothered me was the EPS growth of 11% which is somehow painted by the narrator as a straight / simple arb. An 11% buyback will either 1) drop the sp by 11% instantly if done through a straight cap return or 2) decrease the value of the company if done through an on-market buyback, because the capital is now not generating any return (vs previously considered generating the same company-level cash ROIC) Therefore all else equal the forward-looking earnings will drop and your artificial EPS accretion fades away as well. It’s not just that simple as an arbitrage

[@xsdfghjkhvcbj]

Stock repurchases - saying that if repurchase > issuances in the CFS, direct result in the stock count to go down. This is just untrue as stock is often issued at discounts whilst repo is done at market price, so very likely that in some cases where company spend more on repo vs inflow of cash from issuances could see its share count still go up

[@xsdfghjkhvcbj]

Tbh now not sure why i bothered writing these, most ppl just want simple information. But if you claim yourself to be a HF analyst I think we’ll have to hold you to a higher standard 😄

[@ahmedusama9789]

I have seen manufacturering companies with great competetive advantages and balance sheets. Everything looks perfect then i find that they have negative cash from operating activities and i don't if it's normal for a manufacturing company or not

[@konaboyz1690]

Spot on.... K b cpa Hawaii