sec-cash-flow-review

SEC Cash Flow Review

Extract and analyze cash flow trends and working capital changes from SEC filings for public companies using the Octagon MCP server.

Prerequisites

Ensure Octagon MCP is configured in your AI agent (Cursor, Claude Desktop, Windsurf, etc.). See references/mcp-setup.md for installation instructions.

Workflow

1. Identify Analysis Parameters

Determine the following before querying:

• Ticker: Stock symbol (e.g., AAPL, MSFT, GOOGL)
• Filing Type (optional): 10-K (annual) or 10-Q (quarterly)
• Focus Area (optional): Operating, investing, financing, working capital

2. Execute Query via Octagon MCP

Use the octagon-agent tool with a natural language prompt:

Extract and analyze cash flow trends and working capital changes from <TICKER>'s latest 10-Q.

MCP Call Format:

{
  "server": "octagon-mcp",
  "toolName": "octagon-agent",
  "arguments": {
    "prompt": "Extract and analyze cash flow trends and working capital changes from NFLX's latest 10-Q."
  }
}

3. Expected Output

The agent returns structured cash flow analysis including:

Cash Flow Trends:

• Operating Cash Flow: Increased 37.87% YoY
• Investing Cash Flow: -$2.08B (CapEx, investments)
• Financing Cash Flow: Mixed ($1.04B inflow, -$2.18B outflow)

Working Capital Changes:

• Change in Working Capital: -$456M
• Cash and Equivalents: Decreased $1.193B in 6 months

Key Observations:

• Operating cash flow growth outpaces investing/financing
• Working capital contraction from content investments
• Liquidity sufficient for 12+ months

Data Sources: octagon-financials-agent, octagon-sec-agent, octagon-web-search-agent

4. Interpret Results

See references/interpreting-results.md for guidance on:

• Understanding cash flow components
• Evaluating cash flow quality
• Analyzing working capital trends
• Assessing liquidity position

Example Queries

Full Cash Flow Analysis:

Extract and analyze cash flow trends and working capital changes from NFLX's latest 10-Q.

Free Cash Flow Focus:

Calculate and analyze free cash flow trends for AAPL over the last 4 quarters.

Working Capital Deep Dive:

Analyze working capital changes and cash conversion cycle for AMZN from the latest 10-K.

Liquidity Assessment:

Evaluate TSLA's liquidity position and cash runway from the latest quarterly filing.

CapEx Analysis:

Extract capital expenditure trends and investment priorities from GOOGL's cash flow statement.

Financing Activities:

Analyze debt repayments, share buybacks, and dividend payments from MSFT's latest 10-K cash flow.

Cash Flow Statement Components

Operating Activities

Component	Description
Net Income	Starting point
Depreciation/Amortization	Non-cash add-back
Stock Compensation	Non-cash expense
Deferred Taxes	Timing differences
Working Capital Changes	Current asset/liability changes
Other Adjustments	Non-cash items

Investing Activities

Component	Description
Capital Expenditures	Property, equipment purchases
Acquisitions	Business combinations
Investment Purchases	Securities bought
Investment Sales	Securities sold
Asset Dispositions	Property, equipment sales

Financing Activities

Component	Description
Debt Issuance	Borrowings
Debt Repayment	Principal payments
Share Issuance	Stock offerings
Share Repurchases	Buybacks
Dividends	Shareholder distributions

Key Cash Flow Metrics

Profitability vs. Cash

Metric	Calculation	What It Shows
Operating Cash Flow	From statement	Cash from operations
Free Cash Flow	OCF - CapEx	Cash after investment
FCF Margin	FCF / Revenue	Cash generation rate
Cash Conversion	OCF / Net Income	Earnings quality

Liquidity Metrics

Metric	Calculation	What It Shows
Cash Position	Cash + equivalents	Available liquidity
Cash Runway	Cash / Monthly Burn	Months of runway
Quick Ratio	(Cash + Receivables) / Current Liabilities	Short-term coverage
Current Ratio	Current Assets / Current Liabilities	Working capital

Investment Metrics

Metric	Calculation	What It Shows
CapEx Intensity	CapEx / Revenue	Investment level
CapEx / D&A	CapEx / Depreciation	Maintenance vs. growth
Acquisition Spend	From investing	M&A activity
Investment Returns	Sales / Purchases	Portfolio activity

Working Capital Analysis

Components

Component	Increase Means	Decrease Means
Accounts Receivable	Cash used	Cash provided
Inventory	Cash used	Cash provided
Prepaid Expenses	Cash used	Cash provided
Accounts Payable	Cash provided	Cash used
Accrued Liabilities	Cash provided	Cash used
Deferred Revenue	Cash provided	Cash used

Cash Conversion Cycle

Metric	Calculation
Days Sales Outstanding	(AR / Revenue) × 365
Days Inventory Outstanding	(Inventory / COGS) × 365
Days Payables Outstanding	(AP / COGS) × 365
Cash Conversion Cycle	DSO + DIO - DPO

Working Capital Trends

Trend	Interpretation
Declining CCC	Improved efficiency
Rising CCC	Cash tied up longer
Negative CCC	Customer-funded model
Stable CCC	Consistent operations

Cash Flow Quality Assessment

Quality Indicators

Factor	High Quality	Low Quality
OCF vs. Net Income	OCF > NI	OCF < NI
Sustainability	Recurring sources	One-time items
Working Capital	Stable trends	Erratic changes
Non-Cash Charges	Reasonable D&A	Excessive add-backs

Red Flags

1. OCF < Net Income persistently - Earnings quality concern
2. Negative FCF - Cash consumption
3. Rising receivables - Collection issues
4. Inventory buildup - Demand weakness
5. Declining payables - Supplier pressure
6. Heavy stock compensation - Dilution concern

Trend Analysis

Period-over-Period

Metric	Prior Period	Current	Change
Operating CF
Investing CF
Financing CF
Free Cash Flow
Working Capital

Multi-Year Trends

Track over time:

• OCF growth trajectory
• FCF conversion rate
• Working capital efficiency
• CapEx patterns
• Capital return trends

Liquidity Assessment

Cash Position Analysis

Factor	Assessment
Absolute Level	Adequate for operations
Trend	Growing or declining
vs. Obligations	Coverage of debt, commitments
vs. Investment	Ability to fund growth

Runway Calculation

Scenario	Calculation
Conservative	Cash / Average Monthly Burn
Including Revolver	(Cash + Available Credit) / Burn
Stress	Cash / Peak Monthly Burn

Covenant Considerations

Factor	What to Check
Debt/EBITDA	Leverage limits
Interest Coverage	Payment ability
Minimum Cash	Required balances
CapEx Limits	Investment constraints

Financing Activity Analysis

Capital Structure Changes

Activity	Implication
Debt Issuance	Leverage increase
Debt Repayment	Deleveraging
Equity Issuance	Dilution, capital raise
Buybacks	Return to shareholders
Dividends	Cash distribution

Capital Allocation Assessment

Priority	What It Signals
Heavy CapEx	Growth investment
Heavy Buybacks	Mature, returning cash
Debt Focus	Deleveraging priority
M&A	External growth
Balanced	Diversified approach

Analysis Tips

1. Compare OCF to earnings: Divergence signals quality issues.

2. Track FCF trends: More important than net income.

3. Analyze working capital drivers: Understand component changes.

4. Consider seasonality: Quarterly patterns affect cash flow.

5. Read footnotes: Capital commitments disclosed there.

6. Check management discussion: Cash flow commentary in MD&A.

Use Cases

• Investment analysis: Assess cash generation quality
• Credit analysis: Evaluate debt service capability
• Valuation: FCF-based models
• Liquidity monitoring: Track cash position
• Working capital efficiency: Operational assessment