If you pick stocks, you MUST learn how to read a Cash Flow Statement.

Here’s everything you need to know:
The Cash Flow Statement shows how cash moves in and out of a company over a period of time.

Its purpose is to track cash movement through a business.

It's kind of like your checking account statement from your bank.
The Cash Flow Statement uses CASH accounting.

This method only records transactions when money goes in or out of an account.

This differs from ACCRUAL accounting, which is the accounting method used on the Income Statement and Balance Sheet
There are three main segments to a Cash Flow Statement:

1. Operating Activities
2. Investing Activities
3. Financing Activities

Companies get some leeway with how they break out each segment, but they all follow this basic structure:
First is Operating Activities.

This section shows cash movements from all normal operational business activities.

Operating Activities STARTS with net income, which is the bottom number of the Income Statement
Non-cash charges are ADDED back as a source of cash.

Common categories:
▪️Asset Impairment
▪️Amortization
▪️Depreciation
▪️Stock-Based Compensation
Next is Working Capital, which can ADD or SUBTRACT from cash flow:

Common Categories:
▪️Accounts Receivable
▪️Accounts Payable
▪️Inventory
▪️Prepaid Expenses
The next section is called Cash Flows from Investing Activities.

The shows the cash gains and losses from investments the business has made.
Cash expenses are SUBTRACTED while assets sales are ADDED

Common Categories:
▪️Capital Expenditure (CAPEX)
▪️Acquisitions
▪️Proceeds from the sale of investments
We can now calculate Free Cash Flow (FCF)!

FCF is the cash that is left after a company has paid for its Operating Expenses and CAPEX.

The formula:
FCF = Operating Cash Flow - Capex
The final section is called Cash Flows from Investing Activities.

This measures the cash movements between a company and its owners (shareholders) and its creditors (bondholders).
Cash inflows are ADDED while cash outflows are SUBTRACTED

Common categories:
▪️Debt: Issued or repaid
▪️Stock: Issued or repurchased
▪️Dividends
The final section shows the total changes in the cash balance during the period.

Its shows:
1⃣Sum of Operating Activities + Investing Activities + Financing Activities
2⃣Starting Cash Balance
3⃣Ending Cash Balance
The Cash Flow statement has tons of nuance, but it's arguably the most important financial statement to master.

That's especially true in hard economic times (like right now).
If you pick stocks, it's CRITICAL to learn accounting.

Want help? @Brian_Stoffel_ and I created a course that teaches accounting in plain English

Registration is currently open.

Interested? DM me for a special coupon code.

maven.com/brian-feroldi/…
Prefer to keep learning for free?

Read this thread about the Balance Sheet next:

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Brian Feroldi (🧠,📈)

Brian Feroldi (🧠,📈) Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @BrianFeroldi

Sep 4
If you pick stocks, you MUST learn how to read a balance sheet.

Here’s everything you need to know:
The balance sheet is one of the 3 major financial statements.

It shows:

▪️Assets: What a company owns
▪️Liabilities: What a company owes
▪️Shareholders Equity: The net worth attributable to its owners (shareholders)

At a fixed point in time
That “at a fixed point in time” part is key!

A balance sheet is a SNAPSHOT of a company’s net worth at a POINT in time, usually measured at the end of a quarter/year.

That differs from an income statement or cash flow statement, both of which are measured over a PERIOD of time
Read 19 tweets
Aug 28
If you pick stocks, you MUST learn how to read an income statement.

Here’s everything you need to know:
The income statement shows a company’s revenue and expenses over a period of time, usually a quarter or year.

It’s also called:
▪️Profit and Loss statement, or “P & L”
▪️Statement of earnings

It follows this basic format:
Most public companies show their income statement in their quarterly earnings press release, but not always

Find them by looking at:
▪️10-Q (quarterly report)
▪️10-K (annual report)
▪️Aggregator websites like @theTIKR
Read 20 tweets
Aug 21
The P/E ratio sucks

It’s a metric that easily deceives investors

Here are 8 reasons why the P/E ratio can be INCREDIBLY misleading (and what metrics to use instead):
What is the P/E ratio?

P/E stands for “price-to-earnings”

It’s a simple metric for determining a company’s current valuation

It divides the stock price by the last 12 months of earnings per share
There are 3 main P/E ratios

They all use a different denominator

1: P/E TTM earnings (actual)
2: P/E Forward: NTM earnings (estimates)
3: P/E Forward 1 yr: Next Fiscal Year earnings (estimates)

#1 is the most popular & referenced by far
Read 25 tweets
Aug 13
I love stocks, but personal finance is 10X more important than stock picking.

Use this framework to make your personal finances bullet-proof:
1: Get organized

You can’t make good decisions without good information.

Start by tracking your
▪️Income (monthly & yearly)
▪️Expenses
▪️Net Worth

Use @mint , @PersonalCapital , or whatever tool you’d like (I have a free one below)
2: Optimize insurance coverage

Insurance is boring and costly, but it prevents financial catastrophes

Shop around and get coverage on:
▪️Auto
▪️Health
▪️Identity
▪️Umbrella
▪️Term Life
▪️Homeowners / Renters
Read 17 tweets
Aug 6
If you are new to investing, read this:
I see new investors making the same mistakes again and again

New investors should focus on avoiding big mistakes, NOT on being brilliant

Here are 10 common mistakes of new investors:
1: Short-term mentality

New investors are easily fooled by market randomness

Stock UP this week? “I’m a genius.”
Stock DOWN this week? “Investing is impossible.”

Experienced investors know that stock returns are measured in YEARS, not DAYS
Read 14 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

:(