cash-flow-analysis_skill

Overview

This skill performs a structured five-step analysis of a company's Statement of Cash Flows to assess cash generation, capital deployment, and financing behavior. It helps determine earnings quality, compute key cash metrics like Free Cash Flow, and classify a firm's cash-flow profile for decision-making. The output is a concise diagnostic and prioritized checks to guide valuation or due diligence.

How this skill works

The skill inspects the three sections of the cash flow statement: Operating, Investing, and Financing activities. It flags non-cash adjustments and working capital swings, isolates CapEx and M&A flows, and summarizes debt and equity funding actions. It then computes metrics (FCF, OCF/Net Income, cash conversion) and combines qualitative checks into a cash-flow profile (Mature, Growth, Struggling).

When to use it

• Evaluating a company’s ability to generate sustainable cash from operations
• Estimating Free Cash Flow for valuation or budgeting
• Assessing capital allocation: CapEx, M&A, buybacks, and dividends
• Checking earnings quality and potential accruals risk
• During M&A, credit analysis, or investment due diligence

Best practices

• Start with a normalized Operating Cash Flow: adjust for one-offs and seasonality
• Reconcile Working Capital items to footnotes to confirm drivers
• Separate recurring CapEx from one-time investing outlays
• Benchmark metrics against industry peers and historical trends
• Document assumptions and sensitivity ranges for FCF projections

Example use cases

• Quick diagnostic: determine whether OCF supports reported net income
• CapEx analysis: decide if current investment pace supports growth targets
• Shareholder return review: quantify buybacks and dividend coverage from cash flow
• Credit check: verify debt servicing capacity using cash from operations
• Valuation input: produce normalized FCF for DCF models