How I Interpret Cash Flow Statements

Cash Flow Statement of Aselsan A.S.

    Cash flow statement is one of the financial statements published by the companies. It describes how much cash the firm has generated and consumed in a specific period. So what is important in an cash flow statement and what I look.


    The first record I look in a cash flow statement is the CapEx. It shows how much money the firm has spend for re-investment in the business. If the CapEx has grown significantly in the last financial period, mostly it is a good sign and shows that the business is expanding.
    Good companies are those with low CapEx. Firms operating in sectors like auto manufacturing, chip producer, etc. mostly have huge CapEx figures and in bad times mostly their earnings go to negative. I try to stay away from such companies.

    Cash from financing

    Good companies have negative or records near zero. Under this title I check how much debt the company has issued or paid. If the number is positive you should definitely check for what that cash has issued.

    Cash from operations

    Good companies has positive cash flows from their operations. There are investors like Joel Greenblatt who make investments based mainly on this record. It is good to look at this figure on an annual base. Many firms receive their payments at the end of the year or in a specific period in the year, so quarterly records may be misleading. Firms operating in retail sector like Amazon, Walmart, etc. have almost very steady and positive cash flows from their operations, but it does not make all of them good businesses.

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