Financial Statement Deep Dive
Act as a forensic financial analyst. Perform comprehensive analysis of a single company's financial statements to evaluate earnings quality, financial health, fraud risk indicators, and operational efficiency.
Workflow
Step 1: Identify the Target
Confirm with the user:
- Company — Ticker or name
- Time period — Default: most recent 5 years (20 quarters)
- Focus areas — Full analysis (default) or specific focus (earnings quality, fraud risk, working capital, etc.)
- Comparison — Key competitor(s) for benchmarking (optional)
- Data source — SEC filings (10-K, 10-Q) as primary source
Step 2: Profitability Decomposition
Perform 5-factor DuPont analysis. See references/analysis-methodology.md for formulas.
ROE = Tax Burden × Interest Burden × Operating Margin × Asset Turnover × Equity Multiplier
| Component |
Formula |
What It Reveals |
| Tax burden |
Net income / Pre-tax income |
Tax efficiency |
| Interest burden |
Pre-tax income / EBIT |
Debt cost impact |
| Operating margin |
EBIT / Revenue |
Operational efficiency |
| Asset turnover |
Revenue / Total assets |
Asset utilization |
| Equity multiplier |
Total assets / Equity |
Financial leverage |
Track each component over 5 years to identify what is driving ROE changes.
Step 3: Earnings Quality Assessment
Evaluate whether reported earnings reflect genuine economic value:
| Test |
What It Measures |
Red Flag Threshold |
| Accruals ratio |
Non-cash earnings proportion |
> 10% of total assets |
| Cash conversion |
Operating cash flow / Net income |
< 0.8 persistently |
| Revenue recognition |
Revenue growth vs receivables growth |
Receivables growing faster |
| Deferred revenue |
Trend in deferred revenue |
Declining (front-loaded revenue) |
| Non-recurring items |
One-time gains/charges frequency |
"Non-recurring" items every year |
| Change in estimates |
Depreciation, reserves, assumptions |
Consistently income-boosting changes |
Step 4: Financial Health Scoring
Calculate composite financial health indicators:
| Model |
Purpose |
Components |
| Altman Z-Score |
Bankruptcy prediction |
Working capital, retained earnings, EBIT, market cap, sales — all relative to total assets |
| Piotroski F-Score |
Financial strength |
9 binary signals across profitability, leverage, and efficiency |
| Beneish M-Score |
Earnings manipulation detection |
8 variables measuring anomalies in financial data |
See references/analysis-methodology.md for detailed formulas and interpretation.
Step 5: Working Capital Analysis
Examine operational efficiency through the cash conversion cycle:
| Metric |
Formula |
What It Reveals |
| DSO (Days Sales Outstanding) |
(Receivables / Revenue) × 365 |
Collection efficiency |
| DIO (Days Inventory Outstanding) |
(Inventory / COGS) × 365 |
Inventory management |
| DPO (Days Payable Outstanding) |
(Payables / COGS) × 365 |
Payment practices |
| Cash Conversion Cycle |
DSO + DIO − DPO |
Working capital efficiency |
Track trends over 5 years and compare to peers.
Step 6: Balance Sheet Risk Assessment
Identify off-balance-sheet and hidden risks:
| Risk Area |
What to Check |
| Goodwill / Intangibles |
Size relative to equity; impairment risk |
| Operating leases |
Off-balance-sheet obligations (pre-ASC 842) |
| Pension obligations |
Funded status, discount rate assumptions |
| Contingent liabilities |
Litigation, guarantees, commitments |
| Variable interest entities |
Unconsolidated entities |
| Share-based compensation |
Dilution impact |
| Debt maturity profile |
Near-term maturities vs cash/refinancing capacity |
Step 7: Segment Analysis
Break down performance by business segment:
- Revenue and growth by segment
- Operating margin by segment
- Capital intensity by segment
- Identify which segments drive value and which destroy it
- Cross-subsidization between segments
Step 8: Peer Benchmarking
Compare key metrics against 2–3 direct competitors:
| Metric Category |
Metrics |
| Profitability |
Gross margin, operating margin, net margin, ROE, ROIC |
| Efficiency |
Asset turnover, inventory turnover, receivables turnover |
| Leverage |
Debt/equity, interest coverage, net debt/EBITDA |
| Valuation |
P/E, EV/EBITDA, P/FCF, PEG |
| Growth |
Revenue CAGR, EPS CAGR, FCF CAGR |
Step 9: Synthesize and Present
Compile findings per references/output-template.md:
- Company Overview — Business summary and key metrics
- DuPont Decomposition — 5-year ROE driver analysis
- Earnings Quality Report — Accruals, cash conversion, red flags
- Financial Health Scores — Z-Score, F-Score, M-Score with interpretation
- Working Capital Analysis — CCC trend and peer comparison
- Balance Sheet Risk Map — Hidden risks and off-balance-sheet items
- Segment Analysis — Value drivers and detractors
- Peer Comparison — Benchmarking table
- Overall Assessment — Synthesis of bull/bear case from financial perspective
- Disclaimers
Data Enhancement
For live market data, see references/data-queries.md and run the shared scripts in ../findata-toolkit/scripts/.
Important Guidelines
- Read the footnotes: The most important information in financial statements is often in the footnotes. Flag any unusual accounting policies, related-party transactions, or significant estimates.
- Trends matter more than levels: A declining operating margin is more concerning than a low-but-stable one. Always emphasize directional changes.
- Context is essential: A high debt/equity ratio means different things for a utility vs a tech company. Always interpret metrics within industry context.
- Complement, don't replace, valuation: This skill assesses financial quality, not whether the stock is a buy or sell. Direct valuation questions to the appropriate screening skills.
- GAAP vs non-GAAP: Many companies report "adjusted" earnings that exclude stock-based compensation, restructuring, and other real costs. Always anchor to GAAP, then discuss adjustments.
- Not an audit: This is analytical review, not a professional audit. It cannot detect sophisticated fraud or verify data accuracy.
1---2name: financial-statement-analyzer3description: Perform forensic-level analysis of a single company's financial statements, evaluating earnings quality, financial health, fraud risk, and operational efficiency. Use when the user asks for a deep dive into a company's financials, DuPont analysis, earnings quality check, balance sheet analysis, cash flow analysis, Altman Z-score, Beneish M-score, working capital analysis, or any detailed single-company financial examination.4license: Apache-2.05---67# Financial Statement Deep Dive89Act as a forensic financial analyst. Perform comprehensive analysis of a single company's financial statements to evaluate earnings quality, financial health, fraud risk indicators, and operational efficiency.1011## Workflow1213### Step 1: Identify the Target1415Confirm with the user:16171. **Company** — Ticker or name182. **Time period** — Default: most recent 5 years (20 quarters)193. **Focus areas** — Full analysis (default) or specific focus (earnings quality, fraud risk, working capital, etc.)204. **Comparison** — Key competitor(s) for benchmarking (optional)215. **Data source** — SEC filings (10-K, 10-Q) as primary source2223### Step 2: Profitability Decomposition2425Perform 5-factor DuPont analysis. See [references/analysis-methodology.md](references/analysis-methodology.md) for formulas.2627```28ROE = Tax Burden × Interest Burden × Operating Margin × Asset Turnover × Equity Multiplier29```3031| Component | Formula | What It Reveals |32|-----------|---------|----------------|33| Tax burden | Net income / Pre-tax income | Tax efficiency |34| Interest burden | Pre-tax income / EBIT | Debt cost impact |35| Operating margin | EBIT / Revenue | Operational efficiency |36| Asset turnover | Revenue / Total assets | Asset utilization |37| Equity multiplier | Total assets / Equity | Financial leverage |3839Track each component over 5 years to identify what is driving ROE changes.4041### Step 3: Earnings Quality Assessment4243Evaluate whether reported earnings reflect genuine economic value:4445| Test | What It Measures | Red Flag Threshold |46|------|-----------------|-------------------|47| Accruals ratio | Non-cash earnings proportion | > 10% of total assets |48| Cash conversion | Operating cash flow / Net income | < 0.8 persistently |49| Revenue recognition | Revenue growth vs receivables growth | Receivables growing faster |50| Deferred revenue | Trend in deferred revenue | Declining (front-loaded revenue) |51| Non-recurring items | One-time gains/charges frequency | "Non-recurring" items every year |52| Change in estimates | Depreciation, reserves, assumptions | Consistently income-boosting changes |5354### Step 4: Financial Health Scoring5556Calculate composite financial health indicators:5758| Model | Purpose | Components |59|-------|---------|-----------|60| Altman Z-Score | Bankruptcy prediction | Working capital, retained earnings, EBIT, market cap, sales — all relative to total assets |61| Piotroski F-Score | Financial strength | 9 binary signals across profitability, leverage, and efficiency |62| Beneish M-Score | Earnings manipulation detection | 8 variables measuring anomalies in financial data |6364See [references/analysis-methodology.md](references/analysis-methodology.md) for detailed formulas and interpretation.6566### Step 5: Working Capital Analysis6768Examine operational efficiency through the cash conversion cycle:6970| Metric | Formula | What It Reveals |71|--------|---------|----------------|72| DSO (Days Sales Outstanding) | (Receivables / Revenue) × 365 | Collection efficiency |73| DIO (Days Inventory Outstanding) | (Inventory / COGS) × 365 | Inventory management |74| DPO (Days Payable Outstanding) | (Payables / COGS) × 365 | Payment practices |75| Cash Conversion Cycle | DSO + DIO − DPO | Working capital efficiency |7677Track trends over 5 years and compare to peers.7879### Step 6: Balance Sheet Risk Assessment8081Identify off-balance-sheet and hidden risks:8283| Risk Area | What to Check |84|-----------|---------------|85| Goodwill / Intangibles | Size relative to equity; impairment risk |86| Operating leases | Off-balance-sheet obligations (pre-ASC 842) |87| Pension obligations | Funded status, discount rate assumptions |88| Contingent liabilities | Litigation, guarantees, commitments |89| Variable interest entities | Unconsolidated entities |90| Share-based compensation | Dilution impact |91| Debt maturity profile | Near-term maturities vs cash/refinancing capacity |9293### Step 7: Segment Analysis9495Break down performance by business segment:9697- Revenue and growth by segment98- Operating margin by segment99- Capital intensity by segment100- Identify which segments drive value and which destroy it101- Cross-subsidization between segments102103### Step 8: Peer Benchmarking104105Compare key metrics against 2–3 direct competitors:106107| Metric Category | Metrics |108|----------------|---------|109| Profitability | Gross margin, operating margin, net margin, ROE, ROIC |110| Efficiency | Asset turnover, inventory turnover, receivables turnover |111| Leverage | Debt/equity, interest coverage, net debt/EBITDA |112| Valuation | P/E, EV/EBITDA, P/FCF, PEG |113| Growth | Revenue CAGR, EPS CAGR, FCF CAGR |114115### Step 9: Synthesize and Present116117Compile findings per [references/output-template.md](references/output-template.md):1181191. **Company Overview** — Business summary and key metrics1202. **DuPont Decomposition** — 5-year ROE driver analysis1213. **Earnings Quality Report** — Accruals, cash conversion, red flags1224. **Financial Health Scores** — Z-Score, F-Score, M-Score with interpretation1235. **Working Capital Analysis** — CCC trend and peer comparison1246. **Balance Sheet Risk Map** — Hidden risks and off-balance-sheet items1257. **Segment Analysis** — Value drivers and detractors1268. **Peer Comparison** — Benchmarking table1279. **Overall Assessment** — Synthesis of bull/bear case from financial perspective12810. **Disclaimers**129130## Data Enhancement131132For live market data, see `references/data-queries.md` and run the shared scripts in `../findata-toolkit/scripts/`.133134## Important Guidelines135136- **Read the footnotes**: The most important information in financial statements is often in the footnotes. Flag any unusual accounting policies, related-party transactions, or significant estimates.137- **Trends matter more than levels**: A declining operating margin is more concerning than a low-but-stable one. Always emphasize directional changes.138- **Context is essential**: A high debt/equity ratio means different things for a utility vs a tech company. Always interpret metrics within industry context.139- **Complement, don't replace, valuation**: This skill assesses financial quality, not whether the stock is a buy or sell. Direct valuation questions to the appropriate screening skills.140- **GAAP vs non-GAAP**: Many companies report "adjusted" earnings that exclude stock-based compensation, restructuring, and other real costs. Always anchor to GAAP, then discuss adjustments.141- **Not an audit**: This is analytical review, not a professional audit. It cannot detect sophisticated fraud or verify data accuracy.
yuping322