Hello, I'd like to thank you for all these videos. Very very useful and helpful. Please go ahead and make more videos. All the best and Thanks

@@buffsurfer Thank you for the kind words!!! More videos coming.

Graag gedaan! The cash flow statement takes some time to fully understand, but once you "get it", it can be one of the most insightful financial statements to review. Here are a few more cash flow statement examples of real world companies: kzfaq.info/get/bejne/o8ByndZ6vtiwpoE.html&pp=gAQBiAQB And free cash flow is the key variable that goes into discounted cash flow analysis, so it's important to know how that gets linked to (attempts at) valuation: kzfaq.info/get/bejne/jcuqacJikp-7mYk.html

Thanks for the feedback, Kirthik! I agree that I might be trying to cover too much in one video, but once I am in the flow I sometimes can't stop it. ;-)

Thank you, Sabin! Happy to hear that. Let me know if there are any topics that you think are missing so far on my channel, I am planning to make a lot of new content this year.

Thank you for the kind words!!! Lots more finance case studies (cash flow statement and other financial statements) in this playlist: kzfaq.info/get/bejne/hq9pi5iKx8vPj3k.html

Grazie 1000! :-)

You're welcome! Thanks for the kind words. The cash inflows for interest received are in cash from operating activities, per FAS95: kzfaq.info/get/bejne/et9mnL2WxtGwgWg.html In the CFOA section of the cash flow statement, you would not see this explicitly (i.e. it is not a separate line item in the indirect method), however the amount was already captured in the very first line of the CFOA section: net income.

Thank you very much! That was a fun but intensive series to make, analyzing income statement, balance sheet, and cash flow statement for Alphabet Inc 2017. I have more recently followed it up with a balance sheet comparison between Alphabet Inc and Facebook based on latest quarterly numbers: kzfaq.info/get/bejne/r8dnpbWLr6mwdZc.html

Guess what? I have made videos on that. ;-) Direct method versus indirect method cash flow reporting: kzfaq.info/get/bejne/et9mnL2WxtGwgWg.html An example of the only US company that I know of that uses direct method cash flow reporting (CVS Health): kzfaq.info/get/bejne/opZkiKaFrqjVl4E.html Enjoy!

Thanks I watched and it explained what I needed to know. At least for the time being. Exploring the analysis of FS is like burrowing down a hole - it seems to be a never ending journey.

Agree! Welcome to the club. ;-)

I agree, Steven! I have recently done a video on solvency and liquidity where I discuss the JC Penney bankruptcy case kzfaq.info/get/bejne/sJqqpbRk2Mexo30.html (lack of free cash flow was part of the problem) and a webinar on the Hertz bankruptcy kzfaq.info/get/bejne/kNZzg7uXzJPcYaM.html Hope these are helpful for you as well!

Thanks for watching!

Thanks for the suggestion. I find cash flow statements fascinating, so might do another one of these soon. However, I do prefer the full year look, which seems to "cancel out" some of the noise that might happen in a quarter.

Hello Nick! Thanks for the compliments. Be aware that on the cash flow statement, the "Changes in assets and liabilities" are stated by Alphabet Inc net of effects of acquisitions (see the header above that section). So it could be that $731 + A/P assumed during the year through acquisitions = $1,096. Unfortunately, we have no way to verify that, as in Note 8 Acquisitions we only get an aggregate number for 2017 "$28 million was attributed to net liabilities assumed". The other factor I can think of (but have no way to verify) is that there could be a currency translation difference between how things are stated on the balance sheet versus how they are stated on the cash flow statement. This would only have an effect if a significant amount of Alphabet Inc's A/P would be in non-USD invoice currency. Please subscribe to the channel! I have some more finance case studies for you in this playlist (including a balance sheet comparison Alphabet Inc vs Facebook) kzfaq.info/get/bejne/r8dnpbWLr6mwdZc.html

Hi Naz! Usually, we look at Accounts Receivable on the balance sheet at a point in time (the balance sheet date). In this case of reading a cash flow statement, we look at the changes in the Accounts Receivable (AR) balance between one year-end and the next year-end, in other words the "flow" of the amount (up or down) during a 12-month period. If this AR balance goes up, then the impact on cash flow is negative: there are more "open invoices" (as yet to be paid) at the new year-end versus the previous year-end. Maybe my video on the direct method vs indirect method of cash flow reporting can help (this one is a bit technical): kzfaq.info/get/bejne/et9mnL2WxtGwgWg.html Or alternatively, my video on working capital kzfaq.info/get/bejne/jtx4dM-mzpOmnqM.html

@@TheFinanceStoryteller That explanation makes perfect sense. The negative AR balance on the cash flow statement is good for the cash flow amount because it's the invoices that were paid from last year-end to this year-end statements and therefore, it needs to be added to the cash flow to determine the total amount. As you explained. You're an amazing teacher! Will be joining your KZfaq channel soon. Thank you again.

You're almost there. Let me give you one more example. If the AR balance last year-end was $100 and this year-end $110, then that's an increase in the AR balance (on the balance sheet) between the two measurement dates, which equates to a negative $10 effect on cash flow during the year (as the amount of unpaid invoices has increased) shown as change in working capital ($10). The net increase by $10 in the balance could be the result of issuing $200 in new invoices to customers, and collecting $190 (this $190 can consist of the full $100 of open invoices at the start of the year, plus $90 out of the new invoices). Does that make sense?

@@TheFinanceStoryteller Customers paying invoices brings cash into the company which reduces the AR balance on a year-end to year-end basis on the balance; which is a positive for cashflow calculations. Where I was confused was the opposite of this transaction. If the AR account on the balance sheet increases on a year-end to year-end basis, I wasn't seeing how the cash balance was being impacted. I figured inventory would reduce and maybe the company needs to use more cash to replenish the inventory by the same amount it decreased and therefore, that's why it was a negative impact on cash flow calculations on the cashflow statement. But, after re-watching your video on working capital: kzfaq.info/get/bejne/jtx4dM-mzpOmnqM.html @ 2 minutes into the video, you explain the direct impact of working capital on cash. I believe I understand now; the increase in the AR balance on the balance sheet on a year-end to year-end basis decreases the working capital and that equates to a decrease in cash, which has a negative impact on cash flow calculations on the cashflow statement.

In response to your first question: take a look at the "cash flow profiles" at different stages of a company's lifecycle kzfaq.info/get/bejne/i62UZc-dq6jNfXU.html It would be very nice if a company doesn't have to touch its "regular" cash balance, and be able to use (during the same year) the CFOA inflow to cover both CFIA and CFFA outflow. For companies listed on the stock market, you can download the quarterly financial statements, and get an idea of the cash inflows and outflows during the year. Also, in the cash flow statement, on the line item level of the CFFA section, you tend to find separate lines for (for example) Payments on long-term borrowings, and Proceeds from long-term borrowings. That should help in your analysis. In addition, companies usually have many tranches of debt, so just categorizing things as "old debt" vs "new debt" may be too aggregated a level. Hope this helps!

@@TheFinanceStoryteller i have tried the suggestion you gave me regarding reading the quarterly reports. I have a question regarding quarterly and annual , is it that from quarters 1 to 3 are combined to show the aggregate info on the annual Financial statement on what happened during the whole FY. In where for example in CFFA during Q1 the company reported a payment of long term debt of 10Million then on Quarter 2 it reported a payment of long term debt of 20Million. If the concept i brought up is correct , would that mean that on the Q2 , the first reported 10mn debt payment was already made during Q1 while the increase of 10mn was paid during the Q2 period of that FY , while fastforwarding to the annual report keeping the numbers simple they report a long term debt payment of 40mn for the FY in where in they paid 10mn each quarter but you would only figure that out if you opened each quarterly report ? In where the formula would look something like : current Qrter - Previous Qrter = amount paid or received during current Qrter ?

Yep. If a consolidated statements of cash flows covers the first nine months ("year-to-date"), then Q3 YTD minus Q2 YTD gives you the number for Q3 itself. A balance sheet is a picture at a point in time, so you are always current on that one. For income statements, they usually give you the current quarter by itself, and the year-to-date next to it.

Yes, "repurchases of capital stock" is the term used in the cash flow statement for share buybacks during a period. This is seen as returning money to shareholders, as it decreases the number of publicly tradable shares, and should therefore make the remaining shares more scarce and valuable. "Treasury stock" is a balance sheet term of how many shares at a certain date (normally, the end of a quarter, or end of a year) have a status of having been repurchased but not reissued. Here's the link to my Treasury Stock Example video: kzfaq.info/get/bejne/odR3ftN_ntm9mas.html The line item on stock based compensation is indeed related to stock options and stock grants. The notes to the financial statements of Alphabet Inc should be able to give you more information on what is behind this number.

Thank you! Appreciate the reply... And awesome videos!

You're welcome! Please spread the word. ;-)

Thank you, Vishwa! 33 new videos so far in 2020, so I am going at a good rate....

Hello Luke! Thank you for the kind words. When preparing a cash flow statement using the indirect method, you basically start off with net income and then do two main things: 1) adjusting for non-cash items that were included in the income statement (depreciation, stock-based compensation, etc), and 2) adjusting for changes in working capital (accounts receivable, inventory, accounts payable, etc). If accounts receivable on the balance sheet go up, then that means cash (as an offset) on the balance sheet goes down, which is reflected as a negative amount (cash outflow) in the cash flow statement. Changes in accounts receivable levels are in "category 2". See also my discussion of the cash flow statement direct vs indirect method: kzfaq.info/get/bejne/et9mnL2WxtGwgWg.html

Yes, I am planning to do that! Have only done a few so far. Here's the link for the Amazon to Google financial comparison: kzfaq.info/get/bejne/hq9pi5iKx8vPj3k.html and balance sheet comparison Google versus Facebook kzfaq.info/get/bejne/r8dnpbWLr6mwdZc.html and Walmart income statement kzfaq.info/get/bejne/oNWmfrqSut7InYk.html

Hello Erez! For 2017 CFOA, the $2.9B European Commission fine is "neutral". The cost has been recorded, but it has not been paid yet. Its effect is reflected in two lines in CFOA: the $12.7B in Net Income (which is lower due to the fine), and in the line "change in accrued expenses and other liabilities" (which is higher due to the fine). In other words, the effect on 2017 CFOA is zero, as these lines offset each other. The best way to analyze this is to think through the accounting journal entries, and figure out whether they are on the income statement or the balance sheet. In 2017 the company records: Debit EC fine expense (income statement) Credit accrued liabilities (balance sheet) In other words: reflected as an expense in the income statement, shown as a liability on the balance sheet, but no cash outflow in the cash flow statement (the cash account on the balance sheet is not affected). When the fine gets paid, this will happen: Debit accrued liabilities (balance sheet) Credit cash (balance sheet) In other words: no effect on the income statement (no "new" expense to be booked), but an effect on cash flow (CFOA) which is reflected as a cash outflow due to a decrease in accrued liabilities. On the balance sheet, both the assets and liabilities decrease, the balance sheet becomes "shorter". Hope this makes sense! As I am leading you down the path of learning about accounting journal entries, maybe my video on accruals can help a bit kzfaq.info/get/bejne/oqimobaYrq26nok.html Or if you would like to get a bigger picture on what is called "adjusting entries" (dealing with timing differences between revenue and expenses on one side and cash settlements on the other side): kzfaq.info/get/bejne/a51zhrdnxLjYh58.html

@@TheFinanceStoryteller yes of course it make sense , thanks a lot. I wanted to ask and recommend you in case you have little time to make a video about the company you acquired and it went bankrupt. I like to hear about successes but I prefer to hear about failures and learn from them. What made you buy shares in a bankrupt company? How did you not recognize it was coming? or anything else. If it allows you it will be very interesting, thank you

Not sure whether I will make videos about the topic, but here are some examples of companies I invested in that were in bad shape at the time of buying the shares: a luxury car manufacturer (always boasting about how things were going to be great), a mid-sized American bank (hoping it would recover or be bailed out by the government), an engineering installation company (trying to recover from a huge fraud). At the moment I bought the shares in the respective companies, I hoped that they had hit the "bottom" (in performance and share price), and the strategy/outlook they provided (painting an optimistic picture of the future) sounded fairly credible. None of them ended well. Full disclosure of my portfolio: kzfaq.info/get/bejne/fah8ga6TtM21ZKs.html

@@TheFinanceStoryteller First of all thanks for the video you sent me. Secondly do not think that I accidentally tried to criticize you, I just wonder if even people who know how to analyze high-level reports like yours fall from time to time. Thanks

@@Erez.Levi.Stocks No worries! Yes, I do make these mistakes from time to time, but try to keep them small and learn from it. :-) I think the book "Antifragile" by Nassim Taleb would be something you would like. It talks about learning from making small bets, while staying afloat on a bigger scale.

Hello Etta! Good thinking, as most of the stock related line items (proceeds from issuing stock, paying dividends, buying back shares) are accounted for in CFFA. However, what we are doing here in the CFOA section, is to convert the numbers from a profit-based net income view to a cash-based CFOA view. Stock-based compensation is an expense that we deducted in the income statement to be able to calculate net income, but this expense is not paid in cash but in stock, therefore we need to add it back to get to CFOA. It is similar to how depreciation works in the cash flow statement: it was deducted as an expense to get to the correct net income, but has to be added back for CFOA as depreciation is not paid to anyone. Does that help? P.S. Stock here means equity (shares), not inventory (goods).

@@TheFinanceStoryteller So these are more like employee earnings in equity instead of financing by issuing new shares?

Correct! Stock-based compensation, also called share-based compensation, refers to the rewards given by the company to its employees by way of giving them the equity ownership rights in the company with the motive of aligning the interest of the management, shareholders and the employees of the company. So on top of receiving a salary, they receive stock options. See also my video "What is equity": kzfaq.info/get/bejne/h5eqZpxm2pyUqIk.html

@@TheFinanceStoryteller Thank you for that.

Happy to help! :-)

You compare the amount of accrued liabilities on the balance sheet at the end of the period to the amount at the start of the period. The change in accrued liabilities is the effect on CFOA. Accrued liabilities going up is a positive for CFOA, accrued liabilities going down is a negative for CFOA.

The cash inflows and cash outflows related to marketable securities are an ongoing activity at Alphabet Inc. During 2017, $74B of cash came in, when marketable securities matured (reached the end of their investment period) or were sold. This $74B, plus part of the $37B CFOA, was reinvested into marketable securities (the line item of $92.2B).