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name: financial-analysis description: Analyzes financial statements, calculates key metrics, and generates investment reports. Use when reviewing earnings, building DCF models, or comparing company financials.

Financial Analysis Procedures

Overview

This skill provides systematic approaches to analyzing financial statements, calculating key performance metrics, and generating comprehensive investment reports.

Key Metrics to Calculate

Profitability Ratios

Formulas:

CopyGross Margin = (Revenue - COGS) / Revenue * 100
Operating Margin = Operating Income / Revenue * 100
Net Margin = Net Income / Revenue * 100
ROE = Net Income / Average Shareholders' Equity * 100
ROA = Net Income / Average Total Assets * 100
ROIC = NOPAT / (Total Debt + Shareholders' Equity - Cash) * 100

Valuation Metrics

Enterprise Value Calculation:

CopyEV = Market Cap + Total Debt - Cash and Equivalents
EV = Market Cap + Preferred Stock + Minority Interest + Total Debt - Cash

Liquidity Ratios

Leverage Ratios

DCF Model Structure

Step 1: Project Free Cash Flow

CopyFree Cash Flow = EBIT(1-Tax Rate) + Depreciation - CapEx - Change in Working Capital

Projection periods: 5-10 years
Terminal value: Gordon Growth Model or Exit Multiple

Step 2: Calculate WACC

CopyWACC = (E/V * Re) + (D/V * Rd * (1 - Tc))

Where:
E = Market value of equity
D = Market value of debt
V = E + D
Re = Cost of equity (CAPM)
Rd = Cost of debt
Tc = Corporate tax rate

Step 3: Discount Cash Flows

CopyDCF Value = Sum of [FCF_t / (1 + WACC)^t] + [Terminal Value / (1 + WACC)^n]

Report Structure

1. Executive Summary (1 page)

• Investment thesis (bull/bear case)
• Target price and current price
• Key catalysts and risks
• Recommendation (Buy/Hold/Sell)

2. Business Overview

• Company description
• Revenue segments
• Competitive landscape
• Management assessment

3. Financial Performance Analysis

• Revenue growth trends (3-5 years)
• Margin analysis
• Cash flow generation
• Capital allocation

4. Peer Comparison

5. Valuation Assessment

• DCF analysis with sensitivity table
• Comparable company analysis
• Precedent transactions (if M&A relevant)

6. Risk Factors

• Industry risks
• Company-specific risks
• Macroeconomic factors
• Regulatory considerations

7. Investment Recommendation

• Price target methodology
• Upside/downside scenarios
• Timeline for thesis to play out

Output Format Requirements

Always include:

• Data tables with key metrics
• YoY (Year-over-Year) comparisons
• QoQ (Quarter-over-Quarter) trends
• Industry benchmark comparisons
• Clear source citations for all data
• Date of analysis

Red Flags to Watch

• Declining margins despite revenue growth
• Increasing receivables faster than revenue
• Negative operating cash flow with positive net income
• Frequent accounting policy changes
• High executive turnover
• Unusual related-party transactions
• Goodwill larger than equity

Industry-Specific Considerations