data-financial-analysis

Financial Statement Analysis

Framework

IRON LAW: Read All Three Statements Together

A company can be profitable (Income Statement) but cash-poor (Cash Flow Statement).
A company can have high assets (Balance Sheet) funded entirely by debt.
Reading one statement alone gives an incomplete — and potentially misleading — picture.
ALWAYS read all three and check for consistency.

The Three Statements

Income Statement (損益表) — Did we make money THIS PERIOD?

• Revenue → Gross Profit → Operating Income → Net Income
• Key: Revenue recognition ≠ cash received. Accrual accounting records revenue when earned, not when paid.

Balance Sheet (資產負債表) — What do we own and owe RIGHT NOW?

• Assets = Liabilities + Shareholders' Equity
• Key: This is a SNAPSHOT at one point in time, not a period.

Cash Flow Statement (現金流量表) — Where did cash come from and go?

• Operating activities (core business cash generation)
• Investing activities (capex, acquisitions, asset sales)
• Financing activities (debt, equity, dividends)
• Key: Operating cash flow is the most important — it shows if the core business generates cash.

Red Flags Across Statements

Red Flag	What It Means
Revenue growing but operating cash flow declining	Possible revenue recognition issues, rising receivables
Net income positive but free cash flow negative	Earnings driven by accruals, not cash; heavy capex
Assets growing faster than revenue	Inefficient asset utilization
Debt growing faster than equity	Increasing leverage risk
Inventory growing faster than revenue	Possible obsolescence, demand slowdown

Analysis Steps

1. Read Income Statement: Is the company profitable? At which level (gross, operating, net)?
2. Read Balance Sheet: What's the capital structure? How liquid is it?
3. Read Cash Flow: Is operating cash flow positive? Where is cash going?
4. Cross-check: Revenue growth vs cash flow growth, net income vs operating cash flow
5. Trend: 3-5 year trend for key metrics
6. Benchmark: Compare to industry peers

Output Format

# Financial Statement Analysis: {Company} — {Period}

## Income Statement Highlights
| Metric | Current | Prior Year | Change |
|--------|---------|-----------|--------|
| Revenue | ${X} | ${X} | {%} |
| Gross Margin | {%} | {%} | {±pp} |
| Operating Margin | {%} | {%} | {±pp} |
| Net Income | ${X} | ${X} | {%} |

## Balance Sheet Highlights
| Metric | Current | Prior Year |
|--------|---------|-----------|
| Total Assets | ${X} | ${X} |
| Total Debt | ${X} | ${X} |
| D/E Ratio | {X} | {X} |
| Current Ratio | {X} | {X} |

## Cash Flow Highlights
| Category | Amount |
|----------|--------|
| Operating CF | ${X} |
| Investing CF | ${X} |
| Financing CF | ${X} |
| Free Cash Flow | ${X} |

## Red Flags
- {any detected}

## Overall Assessment
{Financial health verdict with key rationale}

Gotchas

• Revenue ≠ cash: Under accrual accounting, revenue is recorded when earned (product delivered), not when cash is received. Check accounts receivable to see how much revenue is still uncollected.
• EBITDA is not cash flow: EBITDA ignores capex, working capital changes, and taxes — all of which are real cash costs. Use free cash flow for cash analysis.
• One-time items distort trends: Restructuring charges, asset sales, legal settlements create one-time spikes or dips. Use "adjusted" or "normalized" figures for trend analysis.
• Taiwan IFRS vs US GAAP: Taiwan-listed companies use IFRS (TIFRSs). Some treatment differs from US GAAP (lease accounting, revenue recognition details). Note which standard applies.

References

• For financial ratio analysis deep-dive, see the biz-financial-ratios skill
• For DuPont ROE decomposition, see the biz-dupont skill