Financial Statement Analyzer
A repeatable teardown of public-company financials that produces an institutional-quality analysis.
What this skill is
A structured workflow that reads the full Form 10-K and Form 10-Q stack - income statement, balance sheet, cash flow, Management's Discussion and Analysis (MD&A), footnotes, risk factors, and proxy statement - and produces a one-page summary with margin waterfalls, quality-of-earnings score, segment decomposition, and an accounting red-flag log. Designed to surface the data that the headline numbers hide.
What it solves
- Headline Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) reviews that ignore non-Generally Accepted Accounting Principles (non-GAAP) adjustments
- Margin analysis with no waterfall identifying which line item moved
- Missed red flags hiding in footnotes, risk factors, and Cash Conversion Cycle (CCC) trends
- Segment data taken at face value (without checking corporate-overhead allocation)
- Skipping the year-over-year diff of risk factors - the single most under-read disclosure
When to invoke
- Underwriting a long or short position in a public company
- Benchmarking a private company against the public peer set
- Pre-earnings preparation for management question-and-answer
- Quarterly competitor financial review
- Diligence on a partnership, vendor, or acquisition target
Phase 1: Source the filings
Confirm the latest:
- Annual report (Form 10-K, or Form 20-F for foreign issuers) - most recent fiscal year
- Quarterly report (Form 10-Q) - trailing 4 quarters
- Current report (Form 8-K) - material events, guidance, restatements (last 12 months)
- Proxy statement (Form DEF 14A) - executive compensation, related-party transactions, board composition
- Earnings release plus supplemental (segment data often only here)
- Earnings call transcript - tone, question-and-answer pressure points
Log filing date and period for each. Note any restatements.
Phase 2: Quality of revenue
- Revenue recognition policy (Accounting Standards Codification (ASC) 606 adherence)
- Performance obligation timing - ratable versus point-in-time
- Deferred revenue trend (balance sheet liability) - should grow with bookings
- Remaining Performance Obligation (RPO) or backlog - directional read on future revenue
- Customer concentration (top-10 percent of revenue, footnotes)
- Geographic and segment mix - where is growth coming from?
- Channel inventory and sell-in versus sell-through (Consumer Packaged Goods (CPG), hardware) - channel-stuffing risk
- Non-GAAP adjustments - list each and decide if defensible
Compute organic growth = reported growth − Mergers and Acquisitions (M&A) contribution − foreign exchange − accounting policy change.
Phase 3: Profitability and margin architecture
Margin waterfall year-over-year:
| Line |
Y-2 |
Y-1 |
Y |
Δ basis points |
Driver |
| Revenue |
$X |
$X |
$X |
not applicable |
|
| Gross margin |
xx% |
xx% |
xx% |
± basis points |
mix / pricing / cost |
| Research and Development (R&D) percent |
xx% |
xx% |
xx% |
± basis points |
innovation intensity |
| Sales and Marketing (S&M) percent |
xx% |
xx% |
xx% |
± basis points |
growth investment |
| General and Administrative (G&A) percent |
xx% |
xx% |
xx% |
± basis points |
operating leverage |
| Operating margin |
xx% |
xx% |
xx% |
± basis points |
|
| Tax rate |
xx% |
xx% |
xx% |
± basis points |
mix / one-timers |
| Net margin |
xx% |
xx% |
xx% |
± basis points |
|
DuPont decomposition of Return on Equity (ROE):
ROE = Net margin × Asset turnover × Equity multiplier
Identify which lever moved.
Phase 4: Working capital and cash conversion
Cash Conversion Cycle (CCC) = Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) − Days Payable Outstanding (DPO)
- DSO rising → collection problems, channel stuffing, or longer-term contracts
- DIO rising → demand softness, obsolescence
- DPO rising → vendor financing, possibly stress
Compare Cash Flow from Operations (CFO) / Net income:
- Less than 1× across multiple periods → earnings-quality concern
- Identify the gap (working capital, Stock-Based Compensation (SBC), deferred tax)
Free Cash Flow (FCF) / Adjusted EBITDA conversion: Software as a Service (SaaS) 60-80% healthy; services 80%+.
Phase 5: Balance sheet and capital structure
- Net debt / Adjusted EBITDA → covenant headroom, refinancing risk
- Interest coverage = Adjusted EBITDA / interest expense
- Maturity wall (footnotes) - concentration in next 18 months?
- Off-balance-sheet items (operating leases on balance sheet under ASC 842, purchase commitments, contingent consideration)
- Goodwill plus intangibles as percent of equity → impairment risk
- Pension and Other Post-Employment Benefits (OPEB) underfunded status
- Tangible book value versus market capitalization → strategic floor
Phase 6: Accounting red flags
| Red flag |
Look for |
Severity |
| DSO jumping |
up more than 20% year-over-year without business-model change |
High |
| Cost reclass |
Cost of Goods Sold (COGS) moved to operating expense |
Medium |
| Asset quality decline |
non-current assets up faster than revenue |
Medium |
| Soft revenue |
revenue growth much greater than cash collection growth |
High |
| Selling, General and Administrative (SG&A) growing slower than revenue |
possible cost capitalization |
Medium |
| Depreciation rate dropping |
useful-life extensions |
Medium |
| Accruals divided by assets rising |
earnings management |
High |
| Recurring one-time charges |
cookie-jar reserves |
Medium |
| Goodwill up without impairment |
rolling acquisitions, no test |
Medium |
| Restatements in last 3 years |
internal control weakness |
High |
Cross-check the auditor's report: going concern, Critical Audit Matter (CAM), or auditor change.
Phase 7: Segment decomposition
- Revenue plus operating earnings (EBIT) by segment with margins
- Inter-segment eliminations
- Allocation of corporate overhead - does management hide losses?
- Segment capital expenditure if disclosed
- Identify the value-driver and the value-destroyer segments
- Sum-of-the-parts cross-check on consolidated multiples
Phase 8: MD&A and risk factors
- MD&A: specific versus vague year-over-year explanations
- Year-over-year diff of risk factors - new risks added are the most revealing single signal in the filing
- Critical accounting estimates - where management has the most judgment
- Earnings call tone - hedging language, Chief Financial Officer (CFO) guidance walk
Output
- One-page executive summary: bull case, bear case, decisive data point
- Margin and CCC waterfalls with year-over-year drivers
- Quality-of-earnings score (1-10) with reasoning
- Red-flag log with severity and follow-up question
- Peer comparable table: growth, gross margin, operating margin, FCF margin, Return on Invested Capital (ROIC), leverage
- 3 questions to ask the CFO on the next earnings call
Operating rules
Always
- Reconcile non-GAAP to GAAP and judge each adjustment
- Read footnotes - that's where the disclosures live
- Compare CFO to net income across multiple years
- Cross-check segment data against the press release supplemental
- Document data gaps explicitly
Never
- Trust headline EBITDA without the bridge
- Treat one quarter as a trend
- Skip the year-over-year risk factors diff
- Use peer multiples without normalizing for accounting policy
- Confuse organic growth with reported growth
1---2name: financial-statement-analyzer3description: Performs structured fundamental analysis of annual reports (Form 10-K, Form 10-Q): ratio analysis, quality of earnings, working-capital efficiency, segment decomposition, accounting red flags, and Management's Discussion and Analysis (MD&A) parsing. Use when underwriting an investment, evaluating a competitor, preparing for an earnings call, building peer comparables, or screening for accounting risk.4---56# Financial Statement Analyzer78> A repeatable teardown of public-company financials that produces an institutional-quality analysis.910## What this skill is1112A structured workflow that reads the full Form 10-K and Form 10-Q stack - income statement, balance sheet, cash flow, Management's Discussion and Analysis (MD&A), footnotes, risk factors, and proxy statement - and produces a one-page summary with margin waterfalls, quality-of-earnings score, segment decomposition, and an accounting red-flag log. Designed to surface the data that the headline numbers hide.1314## What it solves1516- Headline Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) reviews that ignore non-Generally Accepted Accounting Principles (non-GAAP) adjustments17- Margin analysis with no waterfall identifying which line item moved18- Missed red flags hiding in footnotes, risk factors, and Cash Conversion Cycle (CCC) trends19- Segment data taken at face value (without checking corporate-overhead allocation)20- Skipping the year-over-year diff of risk factors - the single most under-read disclosure2122## When to invoke2324- Underwriting a long or short position in a public company25- Benchmarking a private company against the public peer set26- Pre-earnings preparation for management question-and-answer27- Quarterly competitor financial review28- Diligence on a partnership, vendor, or acquisition target2930## Phase 1: Source the filings3132Confirm the latest:33- Annual report (Form 10-K, or Form 20-F for foreign issuers) - most recent fiscal year34- Quarterly report (Form 10-Q) - trailing 4 quarters35- Current report (Form 8-K) - material events, guidance, restatements (last 12 months)36- Proxy statement (Form DEF 14A) - executive compensation, related-party transactions, board composition37- Earnings release plus supplemental (segment data often only here)38- Earnings call transcript - tone, question-and-answer pressure points3940Log filing date and period for each. Note any restatements.4142## Phase 2: Quality of revenue4344- Revenue recognition policy (Accounting Standards Codification (ASC) 606 adherence)45- Performance obligation timing - ratable versus point-in-time46- Deferred revenue trend (balance sheet liability) - should grow with bookings47- Remaining Performance Obligation (RPO) or backlog - directional read on future revenue48- Customer concentration (top-10 percent of revenue, footnotes)49- Geographic and segment mix - where is growth coming from?50- Channel inventory and sell-in versus sell-through (Consumer Packaged Goods (CPG), hardware) - channel-stuffing risk51- Non-GAAP adjustments - list each and decide if defensible5253Compute organic growth = reported growth − Mergers and Acquisitions (M&A) contribution − foreign exchange − accounting policy change.5455## Phase 3: Profitability and margin architecture5657Margin waterfall year-over-year:5859| Line | Y-2 | Y-1 | Y | Δ basis points | Driver |60|------|-----|-----|---|----------------|--------|61| Revenue | $X | $X | $X | not applicable | |62| Gross margin | xx% | xx% | xx% | ± basis points | mix / pricing / cost |63| Research and Development (R&D) percent | xx% | xx% | xx% | ± basis points | innovation intensity |64| Sales and Marketing (S&M) percent | xx% | xx% | xx% | ± basis points | growth investment |65| General and Administrative (G&A) percent | xx% | xx% | xx% | ± basis points | operating leverage |66| Operating margin | xx% | xx% | xx% | ± basis points | |67| Tax rate | xx% | xx% | xx% | ± basis points | mix / one-timers |68| Net margin | xx% | xx% | xx% | ± basis points | |6970DuPont decomposition of Return on Equity (ROE):7172```73ROE = Net margin × Asset turnover × Equity multiplier74```7576Identify which lever moved.7778## Phase 4: Working capital and cash conversion7980```81Cash Conversion Cycle (CCC) = Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) − Days Payable Outstanding (DPO)82```8384- DSO rising → collection problems, channel stuffing, or longer-term contracts85- DIO rising → demand softness, obsolescence86- DPO rising → vendor financing, possibly stress8788Compare **Cash Flow from Operations (CFO) / Net income**:89- Less than 1× across multiple periods → earnings-quality concern90- Identify the gap (working capital, Stock-Based Compensation (SBC), deferred tax)9192Free Cash Flow (FCF) / Adjusted EBITDA conversion: Software as a Service (SaaS) 60-80% healthy; services 80%+.9394## Phase 5: Balance sheet and capital structure9596- Net debt / Adjusted EBITDA → covenant headroom, refinancing risk97- Interest coverage = Adjusted EBITDA / interest expense98- Maturity wall (footnotes) - concentration in next 18 months?99- Off-balance-sheet items (operating leases on balance sheet under ASC 842, purchase commitments, contingent consideration)100- Goodwill plus intangibles as percent of equity → impairment risk101- Pension and Other Post-Employment Benefits (OPEB) underfunded status102- Tangible book value versus market capitalization → strategic floor103104## Phase 6: Accounting red flags105106| Red flag | Look for | Severity |107|----------|----------|----------|108| DSO jumping | up more than 20% year-over-year without business-model change | High |109| Cost reclass | Cost of Goods Sold (COGS) moved to operating expense | Medium |110| Asset quality decline | non-current assets up faster than revenue | Medium |111| Soft revenue | revenue growth much greater than cash collection growth | High |112| Selling, General and Administrative (SG&A) growing slower than revenue | possible cost capitalization | Medium |113| Depreciation rate dropping | useful-life extensions | Medium |114| Accruals divided by assets rising | earnings management | High |115| Recurring one-time charges | cookie-jar reserves | Medium |116| Goodwill up without impairment | rolling acquisitions, no test | Medium |117| Restatements in last 3 years | internal control weakness | High |118119Cross-check the auditor's report: going concern, Critical Audit Matter (CAM), or auditor change.120121## Phase 7: Segment decomposition122123- Revenue plus operating earnings (EBIT) by segment with margins124- Inter-segment eliminations125- Allocation of corporate overhead - does management hide losses?126- Segment capital expenditure if disclosed127- Identify the value-driver and the value-destroyer segments128- Sum-of-the-parts cross-check on consolidated multiples129130## Phase 8: MD&A and risk factors131132- MD&A: specific versus vague year-over-year explanations133- **Year-over-year diff of risk factors** - new risks added are the most revealing single signal in the filing134- Critical accounting estimates - where management has the most judgment135- Earnings call tone - hedging language, Chief Financial Officer (CFO) guidance walk136137## Output138139- One-page executive summary: bull case, bear case, decisive data point140- Margin and CCC waterfalls with year-over-year drivers141- Quality-of-earnings score (1-10) with reasoning142- Red-flag log with severity and follow-up question143- Peer comparable table: growth, gross margin, operating margin, FCF margin, Return on Invested Capital (ROIC), leverage144- 3 questions to ask the CFO on the next earnings call145146## Operating rules147148**Always**149- Reconcile non-GAAP to GAAP and judge each adjustment150- Read footnotes - that's where the disclosures live151- Compare CFO to net income across multiple years152- Cross-check segment data against the press release supplemental153- Document data gaps explicitly154155**Never**156- Trust headline EBITDA without the bridge157- Treat one quarter as a trend158- Skip the year-over-year risk factors diff159- Use peer multiples without normalizing for accounting policy160- Confuse organic growth with reported growth
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