Begin with the bridge from profit to cash
Accounting earnings and operating cash flow describe different aspects of performance. Examine the timing of receipts and payments, non-cash charges, and changes in working capital before drawing a conclusion.
Look at the demands of growth
Revenue growth can require investment in inventory, receivables, equipment, or software. Consider how much reinvestment is needed and whether that investment supports durable earning capacity.
Read several periods together
A single reporting period can be affected by seasonality or unusual transactions. Review the pattern across periods and use the notes to understand the context behind apparent changes.
Questions for a company memo
What explains the difference between profit and cash generation? Which working-capital movements are temporary? What investment is necessary to sustain the business? Record the sources and the remaining uncertainty.
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