Cash Flow Statement Explained: The Analyst’s Secret Weapon in Stocks

Cash Flow Statement Explained: The Analyst’s Secret Weapon in Stocks

Cash Flow Statement Explained: The Analyst’s Secret Weapon in Stocks – Latest News Today

The Cash Flow Statement is a secret weapon for analysts and investors, a way to see through the accounting tricks companies play on the income statement, and I’m showing you exactly how to analyze it to pick better stocks!

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Everyone loves the Income Statement. Investors fixate on revenue growth and the bottom-line earnings but don’t realize all the tricks management uses to manipulate these numbers. The Statement of Cash Flows is your opportunity to see through these accounting shenanigans and get a better picture of the cash generating power of a business.

Don’t miss our previous video and your ultimate guide to understanding the Income Statement. Don’t neglect the most popular financial statement and how it’s used to pick stocks!
https://youtu.be/qq1lD5NG-CY

In this video, I’ll give you a complete tutorial on the Statement of Cash Flows. I’ll explain what it is and what the cash flow statement shows. I’ll use examples from Apple and IBM to walk you through the cash flows of a company and how to use it to analyze stocks.

Then I’ll show you exactly how analysts use the cash flow statement to compare stocks. This is what I did for years as an equity analyst and I’ll teach you how to do it for any company. We’ll analyze free cash flow and work through the most important cash flow ratios for investors. I’ll show you everything from the cash flow statement basics to more advanced concepts to analyze stocks.

The cash flow statement is separated into three sections; operating, investing and financing. Operating activities is the cash generated directly from the business so this is the most important section. Cash flow is usually negative for investing activities because this is where it’s buying assets or investing in those long-term activities that will grow the business. Cash flow from financing is often negative, so an out-flow of cash, but can also be a positive cash inflow. If the company is paying off debt and paying dividends…like it should, then cash flow from financing will be negative. If it’s borrowing more money than it pays back or pays out as dividends though, it will be a cash inflow and a positive number…but that’s not necessarily a good thing.

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I know it’s a long video but this is one of the most important concepts in investing. This is the biggest part of your time as an analyst and every investor needs to know how to analyze the cash flow statement.

0:00 Cash Flow Statement Analysis Explained
2:30 What is the Statement of Cash Flows?
2:40 How is the Cash Flow Statement Different from the Income Statement?
5:10 What does the Cash Flow Statement Show?
5:45 Apple Cash Flow Statement Analysis
12:56 IBM Cash Flow Statement Example
16:25 How do Investors use the Cash Flow Statement?
19:12 How to Analyze Free Cash Flow
21:35 Important Cash Flow Ratios for Stocks

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.

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