Matt Allen

Matt Allen



How to analyze a: -Cash Flow Statement -Balance Sheet -Income Statement In less than 3 minutes:

Accounting is the language of investing. Understanding how each of these 3 financial statements are connected is crucial for seeking stock investment opportunities

1. Cash Flow Statement The cash flow statement shows how much cash is incoming and outgoing of the business. Cash is divided into 3 sections: -Cash from operating activities -Cash from investing activities -Cash from financing activities

1A. Cash Flow Statement The things I ask myself: -Is operating cash flow positive or negative? (Positive) -Is capital expenditures less than OCF? (Yes) -Is the company buying back stock or issuing new shares? (Buying back) These are 3 simple questions to ask yourself

2. Balance Sheet The balance sheet shows how much a company is worth at that point of time. The balance sheet balances the amount of assets that a company has against its liabilities and stockholders' equity. Assets = Liabilities + Shareholders' equity

2A. Balance Sheet The things I ask myself: -Are the cash & equivalents more than the debt? (Yes) -How much receivables & inventory does a company have? (Low number) -How much goodwill is on the balance sheet? (None) These are 3 simple questions to ask yourself.

3. Income Statement The purpose of an income statement is to show how a company performs over a period of time via their revenue and expenses. Another name is the profit and loss statement

3A. Income Statement The things I ask myself: -Is revenue going up? (+35%) -Is gross profit going up? (+35%) -Are shares outstanding going up or down? (-3%) -Are operating expenses stable? (Yes) These are 4 simple questions to ask yourself.

I never make an investment without doing a deep dive into every aspect of a stock's financial situation. You have to understand their finances to make an educated investment.

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