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Where the return comes from
Return on equity split into what the business earns and how it is financed.
How to read this
Return on equity blends two different things: how good the business is, and how aggressively it is financed. Separating them is the first move in statement analysis, because a rising return means opposite things depending on which half produced it.
The statements
The three statements as filed, newest period last, with the change between periods and a common-size view.
How to read this
The common-size view restates every line as a share of revenue, which is how you compare a company with its own past or with a rival of a different size. A superscript marks a figure the company later revised.
Income statement
Balance sheet
Reformulated balance sheet
The balance sheet split into net operating assets and net debt, which sum to equity.
How to read this
Net operating assets are what the business actually uses; net debt is borrowings less the cash held against them. Splitting them separates the return the business earns from the way it is financed.
Cash flow
Reading the period
What moved, how fast, and whether the shape of the business changed — every sentence computed from the tables above.
How to read this
Horizontal analysis asks what moved and how fast; common-size analysis asks whether the shape of the business changed. Together they are the first pass any statement analysis makes.
Material variances
Lines whose move exceeds a size-scaled threshold and departs from their own trend, ranked by dollar size and capped at eight.
How to read this
A line above $10B must move 5% and $500M, a $1–10B line 10% and $100M, a smaller line 15% and $50M. A move that matches the line's own prior trend is not a flag, however large.
The analyst's note
Written by the desk's research model from the figures computed above — and only those figures. The templates state what moved; this note argues what it means and what would change the story.
Writing the note from the figures above…
Do the profits turn into cash?
Cumulative profit against cumulative free cash flow over the full window.
How to read this
Over a long enough run the two should end up close together. A persistent gap is the most useful early warning in financial analysis — companies have reported rising profits for years while cash went the other way, and the divergence was visible long before anything else broke.