Financial Modelling Bootcamp

Part I: 3FS & Fundamentals

December 2022
3FS Fundamentals & Technicals Bootcamp
Overview

1
Income Statement Structure
3 Financial
Statements Balance Sheet Structure
Breakdown Cash Flow Statement Structure

2 Linking the I/S to CF/S and B/S

Statements CF/S to B/S

Profitability Ratios

3
Leverage Ratios
Metrics and Ratios Efficiency Ratios
Liquidity Ratios
Market Value Ratios
3FS Fundamentals
Overview
Income Statement Balance Sheet
Revenues Assets
(-) Cost of Sales
xxxx ……………………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,###
(+)Depreciation and Amortisation
= EBITDA Liabilities
xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,###
= Net Income xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
Cashflow Statement
CF from Operations
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
CF from Investing
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
CF from Financing
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,###
3FS Fundamentals
Income Statement Structure – Topline

Income Statement
Revenues $1,000 - Begins with Revenue (top line)
(-) Cost of Sales ($500) - First subtraction is the Costs of Goods Sold (COGS)
= Gross Profit $500 - Ends with Gross Profit, a measure of how much income is
generated less expenses pertaining to the generation of
Operating Expenses said income
(-) SG&A $200
(-) Other Income/expense $75
= EBIT $225

(+)Depreciation and Amortisation $100

= EBITDA $335

(-) Interest Expense $150

(+) Interest and Invest. Income $75
= Earnings Before Taxes $150

Taxes and Other Expenses

(-) Provision for Income Tax $30
= Consolidated Net Income $120

(-) Minority Interest (After Tax) $20

= Net Income Attributable to Shareholders $100
3FS Fundamentals
Income Statement Structure – EBIT and EBITDA

Income Statement
Revenues $1,000 - From the Gross Profit, subtract SG&A and other expense
(-) Cost of Sales ($500) line items listed to get EBIT
= Gross Profit $500 - Unless listed separately, Depreciation and Amortization
(D&A) is embedded in SG&A
Operating Expenses - If D&A is subtracted separately, EBITDA can be derived
(-) SG&A $200 directly first
(-) Other Income/expense $75
= EBIT $225

(+)Depreciation and Amortisation $100

= EBITDA $335

(-) Interest Expense $150

(+) Interest and Invest. Income $75
= Earnings Before Taxes $150

Taxes and Other Expenses

(-) Provision for Income Tax $30
= Consolidated Net Income $120

(-) Minority Interest (After Tax) $20

= Net Income Attributable to Shareholders $100
3FS Fundamentals
Income Statement Structure – EBT

Income Statement
Revenues $1,000
(-) Cost of Sales ($500) - From the EBIT (be careful not to use EBITDA in your
= Gross Profit $500 models), subtract the net interest expense to get EBT
- Some companies have interest income in deposits or
issued debt, so there will be an interest income line item
Operating Expenses
(-) SG&A $200
- This is especially common in FIGs or businesses with
lending services
(-) Other Income/expense $75
= EBIT $225

(+)Depreciation and Amortisation $100

= EBITDA $335

(-) Interest Expense $150

(+) Interest and Invest. Income $75
= Earnings Before Taxes $150

Taxes and Other Expenses

(-) Provision for Income Tax $30
= Consolidated Net Income $120

(-) Minority Interest (After Tax) $20

= Net Income Attributable to Shareholders $100
3FS Fundamentals
Income Statement Structure – Net Income

Income Statement
Revenues $1,000 - From the EBT, subtract any provisions for income tax to
(-) Cost of Sales ($500) arrive at Consolidated Net Income
= Gross Profit $500 - Note that this income is attributable to all equity and
debtholders of the company, including minority interests
Operating Expenses - Net Operating Profit After Tax:
(-) SG&A $200 NOPAT = EBIT * (1 – Tax Rate), so you can get NOPAT by
(-) Other Income/expense $75 skipping the interest expense step
= EBIT $225

(+)Depreciation and Amortisation $100

= EBITDA $335

(-) Interest Expense $150

(+) Interest and Invest. Income $75
= Earnings Before Taxes $150

Taxes and Other Expenses

(-) Provision for Income Tax $30
= Consolidated Net Income $120

(-) Minority Interest (After Tax) $20

= Net Income Attributable to Shareholders $100
3FS Fundamentals
Income Statement Structure – Bottom Line

Income Statement
Revenues $1,000
(-) Cost of Sales ($500) - From the Consolidated Net Income, subtract the post-
= Gross Profit $500 tax minority interest to arrive at the Net Income
Attributable To Shareholders (Bottom Line)
Operating Expenses
(-) SG&A $200
(-) Other Income/expense $75
= EBIT $225

(+)Depreciation and Amortisation $100

= EBITDA $335

(-) Interest Expense $150

(+) Interest and Invest. Income $75
= Earnings Before Taxes $150

Taxes and Other Expenses

(-) Provision for Income Tax $30
= Consolidated Net Income $120

(-) Minority Interest (After Tax) $20

= Net Income Attributable to Shareholders $100
3FS Fundamentals
Income Statement Structure – Summary

Income Statement
Revenues $1,000 - Begins with Revenue (top line)
(-) Cost of Sales ($500) - First subtraction is the Costs of Goods Sold (COGS)
= Gross Profit $500 - Ends with Gross Profit, a measure of how much income is
generated less expenses pertaining to the generation of
Operating Expenses said income
(-) SG&A $200
(-) Other Income/expense $75
= EBIT $225 - From the Gross Profit, subtract SG&A and other expense
line items listed to get EBIT
(+)Depreciation and Amortisation $100 - Unless listed separately, Depreciation and Amortization
= EBITDA $335 (D&A) is embedded in SG&A
- If D&A is subtracted separately, EBITDA can be derived
directly first
(-) Interest Expense $150
(+) Interest and Invest. Income $75
= Earnings Before Taxes $150
- From the EBIT (be careful not to use EBITDA in your
models), subtract the net interest expense to get EBT
Taxes and Other Expenses
(-) Provision for Income Tax $30
- Some companies have interest income in deposits or
issued debt, so there will be an interest income line item
= Consolidated Net Income $120
- This is especially common in FIGs or businesses with
lending services

(-) Minority Interest (After Tax) $20

= Net Income Attributable to Shareholders $100
- From the EBT, subtract any provisions for income tax to
arrive at Consolidated Net Income
- Note that this income is attributable to all equity and
- From the Consolidated Net Income, subtract the post-
-
debtholders of the company, including minority interests
Net Operating Profit After Tax:
tax minority interest to arrive at the Net Income
Attributable To Shareholders NOPAT = EBIT * (1 – Tax Rate), so you can get NOPAT by
skipping the interest expense step
3FS Fundamentals
Income Statement Structure – Variations

Depending on the country’s accounting standards, some companies my not present their financial statements in the
standard way

In AAPL’s example, try to spot what is missing

3FS Fundamentals
Income Statement Structure – Notes to Financial Statements

Following the standard flow of an I/S, we do not see the interest expense/income line item in the I/S of their 10-K.
3FS Fundamentals
Income Statement Structure – Notes to Financial Statements

Following the standard flow of an I/S, we do not see the interest expense/income line item in the I/S of their 10-K.

Instead, we need to look through the notes to financial statements and in there, we find that their interest income is
embedded withing the “Other income/(expense)” line item, which usually is overlooked in other financial statements.
3FS Fundamentals
Income Statement Structure – Different Industries

Most companies a very standard and recognizable income statement, but it is important to take not of the industry in which
your target company sits in. For example, the way an insurance company reports its income is very different from a tech
consumer company, as seen by the side-by-side with Apple and Prudential shows the stark difference between the
industries, so it is important to familiarise yourself with the industry as well.

Other examples of non-standard I/S’s are REITs and FIGs, both in very specialised industries, where revenue generating
activities do not follow a standard B2C model.
3FS Fundamentals
Balance Sheet Structure – Overview

Balance Sheet
Assets
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Liabilities
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Shareholders’ Equity
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

The balance sheet comprises of three main components: Assets, Liabilities, and Shareholders’ Equity

It is a snapshot of what the company owns and owes, what shareholders have invested, as well as capital structure.
3FS Fundamentals
Balance Sheet Structure – Balancing Equation

Balance Sheet
Assets
xxxx ……………………………….……………….. $ ###,### The balance comes from this accounting equation and
xxxx ……………………………….……………….. $ ###,### only when it is satisfied is the model “balanced”. It is
intuitive because has to pay for everything it owns (assets)
xxxx ……………………………….……………….. $ ###,###
either through debt (liabilities) or equity (shareholdings).
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Liabilities
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….………………..
xxxx ……………………………….………………..
$ ###,###
$ ###,### A = L+E
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Shareholders’ Equity
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

The balance sheet comprises of three main components: Assets, Liabilities, and Shareholders’ Equity

It is a snapshot of what the company owns and owes, what shareholders have invested, as well as capital structure.
3FS Fundamentals
Balance Sheet Structure – Assets (1/3)

Balance Sheet
Assets
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Liabilities
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Shareholders’ Equity
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

The first part of the balance sheet are the assets, which detail the revenue generating resources owned by the company.
3FS Fundamentals
Balance Sheet Structure – Assets (2/3)

Balance Sheet
Assets Assets are split into current and non-current assets.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,### Below are some examples of common items in each
xxxx ……………………………….……………….. $ ###,### category.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Current Assets Non-current Assets

Cash and Cash Equivalents ..………….…….. $ ###,### Property, Plant & Equipment .………………... $ ###,###
Accounts Receivable .…………………….….. $ ###,### Intangible Assets ...……………………………... $ ###,###
Inventory ….……………………………………... $ ###,### Investment Properties ..………………………... $ ###,###
Other receivables ….…………………………... $ ###,### Interest in Associates/ JV ……………………... $ ###,###
Prepaid Taxes ……….…………………………... $ ###,### Leasehold Improvements ..…………………… $ ###,###
Other Current Assets …………………………... $ ###,### Goodwill ……..…………………………………... $ ###,###

These are common examples of current and non-current asset line items, but balance sheets vary from company to
company and are very different in different industries e.g. insurance companies,
3FS Fundamentals
Balance Sheet Structure – Assets (3/3)

Balance Sheet
Assets Assets are split into current and non-current assets.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,### Below are some examples of common items in each
xxxx ……………………………….……………….. $ ###,### category.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Current Assets Non-current Assets

Cash and Cash Equivalents ..………….…….. $ ###,### Property, Plant & Equipment .………………... $ ###,###
Accounts Receivable .…………………….….. $ ###,### Intangible Assets ...……………………………... $ ###,###
Inventory ….……………………………………... $ ###,### Investment Properties ..………………………... $ ###,###
Other receivables ….…………………………... $ ###,### Interest in Associates/ JV ……………………... $ ###,###
Prepaid Taxes ……….…………………………... $ ###,### Leasehold Improvements ..…………………… $ ###,###
Other Current Assets …………………………... $ ###,### Goodwill ……..…………………………………... $ ###,###

Operating Current Assets Depreciable Assets

These are the assets a firm use to maintain their regular
These long-term assets are usually your main source of
revenue-generating operations.
depreciation, with accompanying notes in the financial
Increase in these items represent a cash outflow as statements specifying how their depreciation is
revenue is recognized without cash inflow, but costs are recognized.
incurred
Important to note for change in Net Working Capital. Important to note for D&A projections in your models

These are common examples of current and non-current asset line items, but balance sheets vary from company to
company and are very different in different industries e.g. insurance companies,
3FS Fundamentals
Balance Sheet Structure – Liabilities (1/3)

Balance Sheet
Assets
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Liabilities
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Shareholders’ Equity
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Next comes the liabilities, which list out the financial obligations the firm has taken up in order to finance their operations.
3FS Fundamentals
Balance Sheet Structure – Liabilities (2/3)

Balance Sheet
Liabilities Similarly, liabilities are split into current and non-current
xxxx ……………………………….……………….. $ ###,### liabilities.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,### Note that in the case of liabilities, there is always a portion
xxxx ……………………………….……………….. $ ###,### of long-term debt shifting from non-current to current
xxxx ……………………………….……………….. $ ###,### liabilities as these debts become due in less than one year.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Current Liabilities Non-current Liabilities

Accounts Payable …………….……………….. $ ###,### Bank Loans ……………………..……….…...….. $ ###,###
Other Trade Payables ..………….……………. $ ###,### Debt Securities ...……………………….……..... $ ###,###
Deferred Revenue …….……………………….. $ ###,### Lease Liabilities ..…………………….………….. $ ###,###
Current Portion of LT Debt ...………………….. $ ###,### Provisions ……………………..………………….. $ ###,###
Short-term Borrowings ...……………………….. $ ###,### Other Non-current Liabilities …………………. $ ###,###
Other ST Liabilities ….….……………………….. $ ###,### Other Financial Liabilities ….………………….. $ ###,###

Liabilities are the financial obligations the company owes to other entities. Most come in the form of loans, revolving credit
facilities, or leases.
Important to look through the notes relating to these items to see the breakdown of the liabilities (loan tenor, loan type etc.)
3FS Fundamentals
Balance Sheet Structure – Liabilities (3/3)

Balance Sheet
Liabilities Similarly, liabilities are split into current and non-current
xxxx ……………………………….……………….. $ ###,### liabilities.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,### Note that in the case of liabilities, there is always a portion
xxxx ……………………………….……………….. $ ###,### of long-term debt shifting from non-current to current
xxxx ……………………………….……………….. $ ###,### liabilities as these debts become due in less than one year.
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Current Liabilities Non-current Liabilities

Accounts Payable …………….……………….. $ ###,### Bank Loans ……………………..……….…...….. $ ###,###
Other Trade Payables ..………….……………. $ ###,### Debt Securities ...……………………….……..... $ ###,###
Deferred Revenue …….……………………….. $ ###,### Lease Liabilities ..…………………….………….. $ ###,###
Current Portion of LT Debt ...………………….. $ ###,### Provisions ……………………..………………….. $ ###,###
Short-term Borrowings ...……………………….. $ ###,### Other Non-current Liabilities …………………. $ ###,###
Other ST Liabilities ….….……………………….. $ ###,### Other Financial Liabilities ….………………….. $ ###,###

Operating Current Liabilities Interest Bearing Debt

These are the liabilities a firm use to maintain their regular These long-term obligations are your drivers of interest
revenue-generating operations. expense and notes defining their tenor, coupon, and
repayment mode are usually available in the company’s
An increase in these items represent a cash inflow as there
financial statements.
is either an immediate increase in cash (short term loans)
or acquisition of cash generating resources on credit. Important to understand the different kinds of debt a
company can take on for your debt projections
Also important to note for change in Net Working Capital.

Liabilities are the financial obligations the company owes to other entities. Most come in the form of loans, revolving credit
facilities, or leases.
Important to look through the notes relating to these items to see the breakdown of the liabilities (loan tenor, loan type etc.)
3FS Fundamentals
Balance Sheet Structure – S.E. (1/2)

Balance Sheet
Assets
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Liabilities
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Shareholders’ Equity
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Lastly, we have shareholders’ equity, which shows the company’s residual value after all financial obligations have been
paid off. The bottom line in this portion tells you how much the company is worth after all debts have been repaid.
3FS Fundamentals
Balance Sheet Structure – S.E. (2/2)

Balance Sheet
Shareholders’ Equity
Share Capital ……….………….……………….. ###,###
Additional Paid-in Capital ..…….……………. $ ###,###
Share-based Compensation ..………………. $ ###,###
Retained Earnings .…….………………………. $ ###,###
Non-controlling Interest …...………………….. $ ###,###

Share Capital APIC Retained Earnings NCI SBC

Also called shares
outstanding, tells Defined as the This is the total net Stake of minority Alternative form of
you how much excess over par income/loss that the shareholders or employee
common stock has value of stock that company has investors with no compensation to
been issued. investors pay per accumulated over voting power cash. Recognized
share, this line item the course of its (preference shares). as a non-cash
Some companies list may or may not lifetime. expense on the I/S ,
their shares appear on the Not considered and added back to
outstanding and company’s filings, It can also be called when looking at net operating cash flow
APIC separately, depending on their comprehensive income available to in the CFS
report it as one line. reporting standards. income/loss. shareholders

As with the first two portions of the balance sheet, SE may or may not have all the items listed here, as they are common
ones that you should take note of
3FS Fundamentals
Cashflow Statement Structure – Overview

Cash Flow Statement

CF from Operations
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Investing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Financing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

The final statement of the 3FS is the cashflow statement, which provides the aggregated cash inflows and outflows to the
company for the fiscal year
3FS Fundamentals
Cashflow Statement Structure – CFO (1/6)

Cash Flow Statement

CF from Operations
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Investing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Financing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

The first source of cashflows is operations, which starts with net income.
3FS Fundamentals
Cashflow Statement Structure – CFO (2/6)

Cash Flow Statement

CF from Operations - Begins with Net Income at the top
Net Income $100 - Add back D&A
(+) Depreciation & Amortization $100 - Some companies will list D&A in their income statement
(+) Stock-Based Compensation $50 as a lone item, some will embed it in their SG&A or other
items
(+) Change in Net Working Capital $150
- Read the notes to find out more
(-) Capital Expenditure
Cash Flow From Operations
$250
$150
- Regardless, D&A has to be added back as it is
recognized as an operational expense but is not a cash
outflow
3FS Fundamentals
Cashflow Statement Structure – CFO (3/6)

Cash Flow Statement

CF from Operations - For companies with SBC, it is recognized as an
Net Income $100 operational expense as well
(+) Depreciation & Amortization $100 - Following the same logic as D&A, it has to be added
(+) Stock-Based Compensation $50 back
(+) Change in Net Working Capital $150
(-) Capital Expenditure $250
Cash Flow From Operations $150
3FS Fundamentals
Cashflow Statement Structure – CFO (4/6)

Cash Flow Statement

CF from Operations
Net Income $100 - Change in net working capital is a key factor in
(+) Depreciation & Amortization $100 balancing your model
(+) Stock-Based Compensation $50
(+) Change in Net Working Capital $150
(-) Capital Expenditure $250
Cash Flow From Operations $150
3FS Fundamentals
Cashflow Statement Structure – CFO (5/6)

Cash Flow Statement

CF from Operations - An increase in operating assets indicate a decrease in
Net Income $100 cash, so they must be subtracted
(+) Depreciation & Amortization $100
(+) Stock-Based Compensation $50 - An increase in operating liabilities indicate an increase
(+) Change in Net Working Capital $150 in cash, so they must be added back
(-) Capital Expenditure $250
Cash Flow From Operations $150
As you can see from

AAPL 10-K CFS Apple’s 10-K, it broke

down the different
components it
recognized as operating
working capital, as do
most companies.

Extremely important to
understand the logic
and take note of this
portion as it plays a big
part in balancing your
models.
3FS Fundamentals
Cashflow Statement Structure – CFO (6/6)

Cash Flow Statement

CF from Operations
Net Income $100 - By the end of it, you should end up with the total cash
(+) Depreciation & Amortization $100 flow from operations
(+) Stock-Based Compensation $50
(+) Change in Net Working Capital $150
Cash Flow From Operations $400
3FS Fundamentals
Cashflow Statement Structure – CFI (1/3)

Cash Flow Statement

CF from Operations
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Investing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Financing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Next is the cashflows from investing.

3FS Fundamentals
Cashflow Statement Structure – CFO (2/3)

Cash Flow Statement

CF from Investing - Capital Expenditure is the money spent on acquiring
(-) Capital Expenditure ($150) fixed assets (PP&E)
(-) Investments in Marketable Securities ($100) - It is not expensed in the income statement as it is
(-) Cash Acquisitions ($50) considered an investing activity
(+) Proceeds from Disposal of Fixed Assets $200 - Has to be subtracted in the investing portion of cashflow
(+) Proceeds from Maturity of Marketable Securities $150 statement
Cash Flow From Operations $50
3FS Fundamentals
Cashflow Statement Structure – CFO (3/3)

Cash Flow Statement

CF from Investing - The rest of the items under cashflow from investing really
(-) Capital Expenditure ($150) depend on the company
(-) Investments in Marketable Securities ($100) - Different companies with different operating models will
(-) Cash Acquisitions ($50) have different investing cashflows
(+) Proceeds from Disposal of Fixed Assets $200 - Other factors like the company’s maturity and treasury
(+) Proceeds from Maturity of Marketable Securities $150 strategy affect how the CFI looks, as it shows how the
Cash Flow From Investing $50 company allocates cash for the long term

AAPL (Tech) ESR-LOGOS (REIT) Exxon (Gas)

- Lower capex as less capital
intensive business model
- Uses its rich cash reserves to
invest in securities like corporate
bonds and other liquid securities
- REITs make money through
investing in properties and each
of the properties’ operations
(rental and leasing)
- Property investment and CapEx
consequently accounts for a
much larger portion of their CFI
- Other sectors like commodities
generally rely on their operations
to generate cash
- CFI here is very simple, only
comprising CapEx, disposals and
some others
3FS Fundamentals
Cashflow Statement Structure – CFF (1/6)

Cash Flow Statement

CF from Operations
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Investing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

CF from Financing
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###
xxxx ……………………………….……………….. $ ###,###

Lastly is the cashflows from financing.

3FS Fundamentals
Cashflow Statement Structure – CFF (2/6)

Cash Flow Statement

CF from Financing - Dividends are not expensed in the income statement
(-) Cash Dividends Paid ($75) and must be subtracted in the cashflow statement as
(+) Debt Issued $200 they represent a cash outflow
(-) Debt Repaid ($100) - They are not expensed because they are considered a
(-) Stock Repurchases ($50) distribution of the firm’s accumulated earnings
(+) Other distributions $150 - They are classified under financing cash flows as they
Cash Flow From Operations $50 are a cost of obtaining financial resources
3FS Fundamentals
Cashflow Statement Structure – CFF (3/6)

Cash Flow Statement

CF from Financing
(-) Cash Dividends Paid ($75) - Proceeds from raising money through debt are included
(+) Debt Issued $200 in financing cash flows
(-) Debt Repaid ($100) - This cash inflow is not captured in the other two
(-) Stock Repurchases ($50) statements but it represents an inflow of cash, so it has to
be added back in CFI
(+) Other distributions $150
Cash Flow From Operations $50
3FS Fundamentals
Cashflow Statement Structure – CFF (4/6)

Cash Flow Statement

CF from Financing - Debt repaid is considered a cost of acquiring financial
(-) Cash Dividends Paid ($75) resources
(+) Debt Issued $200 - Like how dividends are the cost of equity financing,
(-) Debt Repaid ($100) debt repayments are the cost of debt financing
(-) Stock Repurchases ($50) - It is subtracted in the CFI
(+) Other distributions $150
- Details of the specific notes and securities repaid can
usually be found in the notes in financial statements
Cash Flow From Operations $50
3FS Fundamentals
Cashflow Statement Structure – CFF (5/6)

Cash Flow Statement

CF from Financing - The cost incurred in stock repurchases are included in
(-) Cash Dividends Paid ($75) the CFI, and have to be subtracted
(+) Debt Issued $200
- Companies may choose to do so in order to raise
ownership stake of shareholders by reducing shares
(-) Debt Repaid ($100)
outstanding in the market, or if it believes the market is
(-) Stock Repurchases ($50)
discounting its shares too steeply and want to raise stock
(+) Other distributions $150 prices
Cash Flow From Operations $50 - Can be considered as the company investing in itself
3FS Fundamentals
Cashflow Statement Structure – CFF (6/6)

Cash Flow Statement

CF from Financing
(-) Cash Dividends Paid ($75)
- After accounting for other distribution miscellaneous
items, you will get the company’s financing cash flow
(+) Debt Issued $200
(-) Debt Repaid ($100)
(-) Stock Repurchases ($50)
(+) Other distributions $150
Cash Flow From Operations $50
3FS Fundamentals
Linking the Statements – Overview

Income Statement Balance Sheet Cashflow Statement

Revenues Assets CF from Operations
(-) Cost of Sales
Cash and Equivalents ... $ ###,### Net Income …………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###

(+)Depreciation and Amortisation

= EBITDA Liabilities CF from Investing
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity CF from Financing
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Net Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Retained Earnings ….….. $ ###,### xxxx ……………………….. $ ###,###
Net Cash Flow ………….. $ ###,###
 3FS Fundamentals
Linking the Statements – Beginning with Revenue

Income Statement Balance Sheet Cashflow Statement

1 Revenues Assets CF from Operations
(-) Cost of Sales
Cash and Equivalents ... $ ###,### Net Income …………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###

(+)Depreciation and Amortisation

= EBITDA Liabilities CF from Investing
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity CF from Financing
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
2 = Net Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Retained Earnings ….….. $ ###,### xxxx ……………………….. $ ###,###
Net Cash Flow ………….. $ ###,###
 3FS Fundamentals
Linking the Statements – Net Income to B/S and CFS

Income Statement Balance Sheet Cashflow Statement

Revenues Assets CF from Operations
(-) Cost of Sales
Cash and Equivalents ... $ ###,### 4 Net Income …………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###

(+)Depreciation and Amortisation

= EBITDA Liabilities CF from Investing
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity CF from Financing
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
2 = Net Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
3 Retained Earnings ….….. $ ###,### xxxx ……………………….. $ ###,###
Net Cash Flow ………….. $ ###,###
3FS Fundamentals
Linking the Statements – Cash Flows

Income Statement Balance Sheet Cashflow Statement

Revenues Assets CF from Operations
(-) Cost of Sales
Cash and Equivalents ... $ ###,### 4 Net Income …………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###

(+)Depreciation and Amortisation

= EBITDA Liabilities CF from Investing
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity CF from Financing
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Net Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Retained Earnings ….….. $ ###,### xxxx ……………………….. $ ###,###
5 Net Cash Flow ………….. $ ###,###
3FS Fundamentals
Linking the Statements – Final Balance with Cash

Income Statement Balance Sheet Cashflow Statement

Revenues Assets CF from Operations
(-) Cost of Sales
6 Cash and Equivalents ... $ ###,### Net Income …………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###

(+)Depreciation and Amortisation

= EBITDA Liabilities CF from Investing
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity CF from Financing
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Net Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Retained Earnings ….….. $ ###,### xxxx ……………………….. $ ###,###
5 Net Cash Flow ………….. $ ###,###
 3FS Fundamentals
Linking the Statements – From the Top

Income Statement Balance Sheet Cashflow Statement

1 Revenues Assets CF from Operations
(-) Cost of Sales
6 Cash and Equivalents ... $ ###,### 4 Net Income …………….. $ ###,###
= Gross Profit
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Operating Expenses
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) SG&A
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Other Income/expense
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= EBIT
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###

(+)Depreciation and Amortisation

= EBITDA Liabilities CF from Investing
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Interest Expense xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(+) Interest and Invest. Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Earnings Before Taxes xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
Taxes and Other Expenses xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
(-) Provision for Income Tax xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
= Consolidated Net Income
Stockholders’ Equity CF from Financing
(-) Minority Interest (After Tax) xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
2 = Net Income xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
xxxx ……………………….. $ ###,### xxxx ……………………….. $ ###,###
3 Retained Earnings ….….. $ ###,### xxxx ……………………….. $ ###,###
5 Net Cash Flow ………….. $ ###,###
3FS Fundamentals
Metrics and Ratios

Profitability Ratios

Gross Profit Margin Operating Cash Flow Margin

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑂𝐶𝐹 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

Tells you what the business has made after paying the Demonstrates how well the business can convert sales to
direct cost of doing business. into cash, which is why only OCF is used.

EBITDA Margin Return on Assets (ROA)

𝐸𝐵𝐼𝑇𝐷𝐴 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

𝐸𝐵𝐼𝑇𝐷𝐴 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑅𝑂𝐴 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

A measure of the company’s operating profit, shown as a A measure of how efficient the company is in generating
percentage of its revenue. profit from their total assets on their balance sheet.

EBIT Margin Return on Equity (ROE)

𝐸𝐵𝐼𝑇 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

𝐸𝐵𝐼𝑇 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑅𝑂𝐸 = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

An alternative measure of a business’s profitability; which A measure of profitability in relation to the equity; should
one to use depends on the business’s fixed assets. be benchmarked against industry peers to assess.

Net Income Margin Return on Invested Capital (ROIC)

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑁𝑂𝑃𝐴𝑇

𝐸𝐵𝐼𝑇 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑅𝑂𝐼𝐶 = 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

The net post-tax income of a business as a percentage of Measures the company’s efficiency in allocating capital to
sales, used to track proportional profitability. profitable investments, usually compared to WACC.
3FS Fundamentals
Metrics and Ratios

Leverage Ratios

Debt to Assets Ratio Interest Coverage Ratio

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒 𝐸𝐵𝐼𝑇

𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑅𝑎𝑡𝑖𝑜 = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑉𝑎𝑙𝑢𝑒

Shows how much of the business is owned by creditors Debt and profitability ratio used to determine how easily a
compared to shareholders. company can pay interest on its outstanding debt.

Debt to Equity Ratio Debt Service Coverage Ratio (DSCR)

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒 𝑁𝑒𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝐸𝑞𝑢𝑖𝑡𝑦 − 𝑅𝑎𝑡𝑖𝑜 = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦
𝐷𝑆𝐶𝑅 = 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒∗

Indicates how much debt a company is using to finance its A measurement of the firm’s available cash flow to pay
assets relative to the value of shareholders’ equity. current debt obligations.

Capitalization Ratio Asset Coverage Ratio

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑆.𝑇. 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠∗

𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒 + 𝑆.𝐸.
𝐴𝑠𝑠𝑒𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒

Measures the proportion of debt in a company’s capital Measures how well a company can repay its debts by
base, funds from lenders and shareholders. selling or liquidating its assets.

Leverage Ratios

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 − 𝐸𝐵𝐼𝑇𝐷𝐴 =

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒
𝐸𝐵𝐼𝑇𝐷𝐴
, 𝑁𝑒𝑡 𝐷𝑒𝑏𝑡 − 𝐸𝐵𝐼𝑇𝐷𝐴 =
𝑁𝑒𝑡 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒
𝐸𝐵𝐼𝑇𝐷𝐴
, 𝑆𝑒𝑛𝑖𝑜𝑟 𝐷𝑒𝑏𝑡 − 𝐸𝐵𝐼𝑇𝐷𝐴 =
𝑆𝑒𝑛𝑖𝑜𝑟 𝐷𝑒𝑏𝑡 𝑉𝑎𝑙𝑢𝑒
𝐸𝐵𝐼𝑇𝐷𝐴

More general metrics to measure the amount of income generated and available to pay down debt before covering
interest, taxes, depreciation, and amortization expenses.
3FS Fundamentals
Metrics and Ratios

Efficiency Ratios

Inventory Turnover Ratio Accounts Payable Turnover

𝐶𝑂𝐺𝑆 𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 (𝐶𝑂𝐺𝑆)

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠

Inventory turnover is the rate that inventory stock is sold, or Accounts payable turnover shows how many times a
used, and replaced. Can be used to model inventory. company pays off its accounts payable during a period.

Accounts Receivable Turnover Days Outstanding

𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 (𝑅𝑒𝑣𝑒𝑛𝑢𝑒) 365
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
𝑋𝑋𝑋𝑋 𝐷𝑎𝑦𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 =
𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜

AR turnover ratio is used to measure how effective a The average number of days a business takes to
business is at collecting debt and extending credit. collect/repay debt or that goods stay in inventory

Cash Conversion Cycle

Cash Conversion Cycle (CCC)

𝐶𝐶𝐶 = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐷𝑎𝑦𝑠 + 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝐷𝑎𝑦𝑠 − 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝐷𝑎𝑦𝑠

Inventory Suppliers Inventory Customers

Purchased Paid Sold Pay

Inventory Days A/R Days

Cash Conversion Cycle
A/P Days

Cash Out Cash In

3FS Fundamentals
Metrics and Ratios

Liquidity Ratios

Current Ratio Cash Ratio

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑎𝑠ℎ 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Measures a company’s ability to pay short-term Measures the company’s ability to pay short-term
obligations, particularly those due within one year. obligations due within one year with cash on hand.

Quick Ratio Defensive Interval Ratio

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑎𝑠ℎ & 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠 + 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 + 𝐴/𝑅 𝐷𝑒𝑓𝑒𝑛𝑠𝑖𝑣𝑒 𝐼𝑛𝑡𝑒𝑟𝑣𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 =
𝐷𝑎𝑖𝑙𝑦 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

OR Measures how many days a company can continue

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 – 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 – 𝑃𝑟𝑒𝑝𝑎𝑖𝑑 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Also known as the acid-test ratio, it measures the ability of
a company to use near cash or quick assets to pay off
short-term obligations.
operating while relying on defensive (liquid) assets.
Considered by some market analysts to be a more useful
liquidity ratio than the cash or quick ratio as it compares
assets to expenses rather than liabilities, and is a commonly
used supplementary financial ratio.
3FS Fundamentals
Metrics and Ratios

Market Value Ratios

Book Value Per Share Cash Earnings Per Share (CEPS)

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 −𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑆𝑡𝑜𝑐𝑘 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤

𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒/𝑠ℎ𝑎𝑟𝑒 = 𝐶𝐸𝑃𝑆 = 𝐷𝑖𝑙𝑢𝑡𝑒𝑑 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

Used in comparing against the company’s market value Compares the company’s cash earnings on a per share
per share (below). basis, can be used as a sense check on EPS.

Price-to-book Ratio (P/BV) Dividends Per Share (DPS)

𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒/𝑆ℎ𝑎𝑟𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑

𝑃/𝐵𝑉 = (𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 −𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠)/𝑆ℎ𝑎𝑟𝑒𝑠
𝐷𝑃𝑆 = 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

Compares the company’s market capitalization to its BV, An important metric that is more specific to shareholders as
often used by value investors for under-priced stocks. it shows the amount of cash paid out to investors

Earnings Per Share (EPS) Dividend Yield

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 −𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

𝐸𝑃𝑆 = 𝑆ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑦𝑖𝑒𝑙𝑑 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒

An indication of profitability, can be reported as adjusted An estimate of the return on a stock investment, which is
for extraordinary items or potential dilution. important to strategies that rely on dividend income.

Price-to-earnings Ratio (P/E)

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒

𝑃/𝐸 =
𝐸𝑃𝑆

Also known as price/earnings multiple, often used to

determine the relative value of the company’s shares.