When looking at companies, the most important document to analyze is the Cash Flow Statement.
The Cash Flow Statement shows the true inflows and outflows of cash. The Income Statement can be misleading, as it includes non-cash expenses such as Depreciation and Amortization, and excludes cash expenses such as Capital Expenditures.
The Cash Flow Statement is broken down into 3 main sections: Cash Flow from Operations (CFO), Cash Flow from Investments (CFI), and Cash Flow from Financing (CFF). At the bottom, the Cash Flow Statement reveals the change in cash within the company.
Generally, you want to look for companies with positive and growing Cash Flow, as this money can then be used to repay investors (in the form of dividends) as well as reinvest into the business.
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