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

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Sth i noted down from your video as free... Yield. But i ask my self why didnt you add or ignore the key finance activities

[@Amangupta-nv4jc]

Just understood something in 16 minutes that my 12th grade teacher was trying to explain me for literally 6 months.. Really appreciated it.🙏🙏

[@WhyBecause.]

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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😂😂 literally !

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In india we have financial statements analysis from grade 12th

[@nightone9720]

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.

[@sandywang8992]

Thanks!

[@InvestorCenter]

Thank you so much ❤️

[@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!

[@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 😊

[@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!

[@MagallyRengifo]

Love, when people are doing something with Excellence!

[@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!

[@TheIlija995]

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!

[@InvestorCenter]

@@TheIlija995 thank you!!!

[@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

[@RahulYadav-nk6wp]

Do you have a LinkedIn Profile?

[@gracebellen9745]

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[@PMLectures888]

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!

[@bikashshrestha1472]

Thank you Ic for teaching most boring thing in investing 😉

[@abraham.j]

Who are you? I am so grateful for people like you! God Bless you.

[@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. :)

[@livins4504]

I can listen this voice all day!!

[@ghmohamed]

Simple and easy and beautiful analysis Thank you

[@gloriawitek6401]

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

[@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!

[@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!

[@anhtqyrc]

Your voice makes the information easier to absorb.

[@kyledavies97]

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

[@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!

[@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.

[@DarrylRenken]

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

[@scottcardais3560]

Wonderfully clear explanation. Thank you.

[@VasQuezadilla]

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

[@anishj3140]

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

[@shabchique7149]

You're such a good teacher! 👏

[@InvestorPro7]

it is full of knowledge and superb video.

[@InvestorCenter]

Thanks for the kind words :)

[@jaehus1971]

Excellent video. Thank you !

[@PeakperformerEmil]

The last calculation is really good

[@richdadadvice8128]

Interesting video as always! Keep up the work 🚀

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Hlo rich daddy

[@prashanthkoundinya8385]

Awesome explanation, cheers!

[@lauravolkman]

Thank you for the informative content!

[@InvestorCenter]

Glad it was helpful!

[@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.

[@todd-7819]

Excellent video. Thankyou!

[@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!

[@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!

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Extremely insightful and well detailed video. Great work👍

[@77magicbus]

Great Job! Thanks for the tutorial.

[@InvestorCenter]

Thank you!

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

[@InvestorCenter]

Glad it was helpful!

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This is gold! Thank you for this video

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this video is gold. Thank you!

[@InvestorCenter]

Glad you enjoyed it!

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Great explanation, thank you very much

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@@djben928 the support means a ton ❤️

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what an awesome video, thank you. Subscribed.

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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.

[@AugustNocturne]

Amazing. Please keep doing this.

[@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.

[@bilaal16]

😮

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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!

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Thanks a lot! It was quite useful!

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Such a great video! Thank you!!

[@InvestorCenter]

Thank you! Glad you enjoyed it, Brian

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My Thanks and Appreciation for simple example cash flow statement

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Awesome content

[@InvestorCenter]

Thank you!

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Great video. Well done

[@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.

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

[@InvestorCenter]

Glad you enjoyed it, Allen!

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Awesome video! Thank you very much.

[@InvestorCenter]

I appreciate the kind words! You are welcome

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Thanks, nice divulgative video, keep up!

[@InvestorCenter]

Thank you for the kind words!

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

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Thank you for this video!

[@esaias536]

very good, helpful. thank u

[@anmoltiwari5981]

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

[@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?

[@candyfloss184]

Thank you 🙏

[@InvestorCenter]

Thank you!

[@robertschwagerl3842]

Great video....Thank you

[@johnpatrick3458]

Great video.

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Love this video...thanks 👍

[@abirchatterjee8131]

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

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True . Nice video

[@InvestorCenter]

Thanks for watching!

[@wlays1]

Wow amazing content! Thank you so much

[@InvestorCenter]

Thank you! I appreciate the kind words

[@himanshumalhotra4244]

What an amazing video, thanks for sharing

[@PeakperformerEmil]

Great video

[@ForDreamsThatDoComeTrue]

Just amazing.

[@Mrmarginofsafety]

Excellent!

[@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

[@jazzielzavala3]

you're doing God's work

[@InvestorCenter]

Thank you!

[@kat5266]

7:11 How does working capital become positive? Operating costs and maintenance are always negative, aren't they?

[@muratuzer6772]

If your Net Current Assets are higher than your net Current Liabilities your Working Capital is positive

[@reaganmowery4635]

i rly wish you woulda been my accounting professor

[@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?

[@carloslongo53]

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

[@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

[@josephcarbone5379]

Excellent

[@canaldoaalves]

So amazing

[@jirehllc1793]

Please explain why cash flow (or free cash flow) is a better metric than earnings when evaluating a company. Thank you!

[@vanshkhanuja8611]

Because it shows actual cash earned by the company. You'll still need to dig deep to understand the actual FCF though.

[@FarEastAlpaca]

To oversimply, companies owners have incentives to artificially reduce earnings and thereby reduce corporate tax incurred, which is based on earning instead of cash flow.

[@store1sm10]

Earnings can be manipulated by accounting, FCF is a truer picture

[@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 :)

[@Torotero]

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

[@InvestorCenter]

The US

[@irvinedania2735]

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

[@danny100d]

Thank you.

[@InvestorCenter]

You are welcome!

[@BBFletcher4202]

Appreciate it.

[@InvestorCenter]

Appreciate you watching the video!

[@harshvardhanselot7248]

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

[@vitaliyvan3345]

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!

[@AMF_1]

I noticed the same. It is a shame you have not received an answer to your question, but you are correct !

[@prakanshmishra9004]

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.

[@lazardjurovic2883]

Can we expect the same analysis for balance sheet?

[@k4ir0s]

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).

[@vivianeze4889]

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.

[@TON-vz3pe]

How much time does it actually take to do full fundamental analysis of one company?

[@albertb.8123]

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