Educational materials nr. 4
Hello, dear community.
This article is about metrics, which show real finance situation of the company. They are based on Cash Flow Statement. Metrics, based on Income Statement can be unreal, but based on Cash Flow Statement are hard to forge.
Describing of them:
CFI – Cash Flow from Investing. Calculate with buying-selling securities, emission of bonds and dividend payments.
CFF – Cash Flow from Financing. Calculate with buying-selling of company assets.
CFO – Cash Flow from Operations. Is the most important in analyzing of financial situation. Calculate with sells, inventory costs, interest payments, taxes and cost of goods sold (COGS).
FCF – Free Cash Flow. Is sum of CFI, CFF, CFO.
P/FCF – relation price of the stock to FCF on stock. Is metric of overvaluation/undervaluation of the company. Is important near, close meanings of P/E to P/FCF. That is mean, that real activity of company has no difference or little difference from declared results.
Price-to-Owner-Earnings – Relation price of the stock to owner earning on stock. Show real activity of the company, unlike P/E.
Owner earnings – Profit of the owners of the company. Owner earnings = net profit + depreciation & amortization +/- another non-cash costs – average annual maintenance capital expenses.
But even Cash Flow statement do not secure from manipulations. For understanding real situation needs:
1. Exclude tax benefits related to employee stock options.
2. Exclude anomaly big changes in currents assets. For example, it is big changing of accounts receivables, inventories, accounts payable. All this changes tell, that company try to manipulate data to make better presentation of financial results.
3. Minus costs, which needs to support operational activity (taken from CFI).
Pros metrics, based on Cash Flow Statement:
+ Show real situation of the company business
+ Hard to forge – any changes are seen
Cons metrics, based on Cash Flow Statement:
- Needs checking and re-calculations
This indexes give a possibility to check veracity of financial results. And they complement analysis from Income Statement and Balance Sheet metrics.
Wish you have good investments,
Financial advisor and analyst,
Valerii Selin
This article is about metrics, which show real finance situation of the company. They are based on Cash Flow Statement. Metrics, based on Income Statement can be unreal, but based on Cash Flow Statement are hard to forge.
Describing of them:
CFI – Cash Flow from Investing. Calculate with buying-selling securities, emission of bonds and dividend payments.
CFF – Cash Flow from Financing. Calculate with buying-selling of company assets.
CFO – Cash Flow from Operations. Is the most important in analyzing of financial situation. Calculate with sells, inventory costs, interest payments, taxes and cost of goods sold (COGS).
FCF – Free Cash Flow. Is sum of CFI, CFF, CFO.
P/FCF – relation price of the stock to FCF on stock. Is metric of overvaluation/undervaluation of the company. Is important near, close meanings of P/E to P/FCF. That is mean, that real activity of company has no difference or little difference from declared results.
Price-to-Owner-Earnings – Relation price of the stock to owner earning on stock. Show real activity of the company, unlike P/E.
Owner earnings – Profit of the owners of the company. Owner earnings = net profit + depreciation & amortization +/- another non-cash costs – average annual maintenance capital expenses.
But even Cash Flow statement do not secure from manipulations. For understanding real situation needs:
1. Exclude tax benefits related to employee stock options.
2. Exclude anomaly big changes in currents assets. For example, it is big changing of accounts receivables, inventories, accounts payable. All this changes tell, that company try to manipulate data to make better presentation of financial results.
3. Minus costs, which needs to support operational activity (taken from CFI).
Pros metrics, based on Cash Flow Statement:
+ Show real situation of the company business
+ Hard to forge – any changes are seen
Cons metrics, based on Cash Flow Statement:
- Needs checking and re-calculations
This indexes give a possibility to check veracity of financial results. And they complement analysis from Income Statement and Balance Sheet metrics.
Wish you have good investments,
Financial advisor and analyst,
Valerii Selin
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