Hey Reader,
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Warren Buffett is well-known for his Coke investments. In 1988, he bought Coca-Cola for its strong brand, reliable profits, and enduring demand, transforming a $1 billion investment into a lasting success. But did you know he was an avid Pepsi drinker before that?

In today's issue:

• Dispelling 5 Myths about Moats
• Here's How Bill Ackman Structures a Stock Pitch
• The Super Investors of Microcap
• 10 Steps to Analyzing a Cash Flow Statement

NUGGETS

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My Favorite Finds

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​Moats can help us find enduring investments; here, Rob Vinall dispels five myths about moats.

​Here's How Bill Ackman Structures a Stock Pitch.

​Starbucks from Beans to Billions: The Story of a Coffee Brand

​The Three Engines of Value and How to Identify Them.

​The Super Investors of Microcap

​A Quick Primer on WACC (Weighted Average Cost of Capital).

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DEEP DIVE

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10 Steps to Analyzing

The Cash Flow

Statement

How much cash flow does $AMZN generate?

How does $AMZN allocate capital?

The cash flow statement tells us all..

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Here are ten steps to start analyzing arguably the most important financial statement.

1. Start with Net Income: Begin your analysis with the net income from the income statement.
2. Adjust for Non-Cash Expenses: Add non-cash expenses like depreciation and amortization.
3. Consider Changes in Working Capital: Evaluate the changes in working capital to assess cash flow from operations.
4. Analyze Operating Cash Flow: Examine cash generated from core business activities.
5. Review Investing Activities: Look at cash used in or generated from investing activities, such as purchasing assets.
6. Evaluate Financing Activities: Assess cash flow from financing activities, including loans, dividends, and share buybacks.
7. Calculate Free Cash Flow (FCF): Deduct capital expenditures from operating cash flow.
8. Understand Net Cash Increase or Decrease: Determine the net change in cash position.
9. Compare Periods: Analyze trends by comparing cash flow statements across different periods.
10. Integrate with Other Financial Statements: For a comprehensive financial analysis, correlate the cash flow statement with the balance sheet and income statement.

Let’s put this through the paces with Amazon’s cash flow statement:

• Net income for the trailing twelve months equals $20 billion.

Adjusting for:

• Depreciation/Amortization = $47.5 billion
• Stock-based compensation = $23.3 billion
• Changes in working capital = $(14.6) billion
• Operating cash flow = $71.6 billion
• Cash from Investing equals $(48) billion, including investments and cash acquisitions.
• Cash from Financing equals $(9) billion including net debt of $(9)
• Calculating FCF = $71.6 billion - Capex of $54.7 billion = $16.9 billion

Amazon’s net cash change was $14.9 billion, continuing a five-quarter trend of growing its cash pile.

Amazon has had a 10-year CAGR of 24.3% in FCF, with it positive this year after two down years.

Amazon has seen revenue growth, translating to current assets larger than current liabilities, growing equity, and growing FCF.

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EDUCATION

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Today's Bite

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Of Knowledge

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The Investing for Beginners Podcast @IFB_podcast Understanding where a company's profits come from: 10:4 AM • Jun 13, 2024 221 Retweets 963 Likes Read 4 replies

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Thanks,
Dave Ahern
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​einvestingforbeginners.com​
​Investing for Beginners Podcast​

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When you're ready, here's how we can help you:

​Value Spotlight: Stock market investors can save time and find success by discovering the right tools and resources. If you don't know where to start, or are simply tired of wading through the endless sea of financial information, Value Spotlight was created for you.

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