# financial-statements

Works through the three statements, derives EBITDA, FCFF/FCFE and ROIC, and splits ROE the DuPont way. Useful when you need to know if earnings are backed by cash.

- skill · `type=skill` · Claude Code, Codex, Cursor, GitHub Copilot, Gemini CLI, OpenCode · 314 installs · ★ 218
- Author: JoelLewis
- License: MIT · policy=mirror · the beginning of the file is at the end of this page
- Source: https://github.com/JoelLewis/finance_skills/tree/HEAD/plugins/wealth-management/skills/financial-statements/SKILL.md
- Updated: 2026-07-18
- HTML: https://affpapa.org/en/nevibecode/skills/joellewis-financial-statements

## What it does

The skill walks the agent through how the income statement, balance sheet and cash flow statement tie together, and where accrual earnings drift away from actual cash. Then the math starts. EBITDA with each add-back examined on its own, free cash flow in both flavours: FCFF for all capital providers, FCFE for shareholders. Formulas come in two forms, one starting from CFO and one from EBIT.

There is a value-creation test built in: ROIC against WACC. Growth below the cost of capital destroys value, and the skill says so rather than dressing it up. ROE gets decomposed into net margin, asset turnover and equity multiplier, so you can see whether returns come from operations or from leverage. A rising ROE driven only by the multiplier is a warning, not an improvement.

Earnings quality runs on the accruals ratio, working capital trends and the cash conversion cycle. Red flags are listed one by one: receivables outrunning revenue, quarter-end shipment spikes, capitalising costs that peers expense. Deferred taxes and cost basis get their own section, which matters if you are weighing the tax bill on selling an appreciated position. The rates in the examples are pegged to 2026, so swap them for your own jurisdiction.

## Install

### Claude Code (native platform)

1. **Skills CLI (Vercel)**
```bash
npx skills add JoelLewis/finance_skills --skill financial-statements -a claude-code
```

2. **Manually: put the files in place**
- File: `~/.claude/skills/financial-statements/SKILL.md` — Copy the whole skill folder; for one project use .claude/skills/financial-statements/

### Codex

1. **Skills CLI (Vercel)**
```bash
npx skills add JoelLewis/finance_skills --skill financial-statements -a codex
```

2. **Manually: put the files in place**
- File: `.agents/skills/financial-statements/SKILL.md` — For all projects use ~/.agents/skills/

### Cursor

1. **Skills CLI (Vercel)**
```bash
npx skills add JoelLewis/finance_skills --skill financial-statements -a cursor
```

2. **Manually: put the files in place**
- File: `.cursor/skills/financial-statements/SKILL.md` — Cursor also reads .agents/skills/ and .claude/skills/

### GitHub Copilot

1. **GitHub CLI**
```bash
gh skill install JoelLewis/finance_skills financial-statements
```

2. **Manually: put the files in place**
- File: `.github/skills/financial-statements/SKILL.md`

### Gemini CLI

1. **Skills CLI (Vercel)**
```bash
npx skills add JoelLewis/finance_skills --skill financial-statements -a gemini-cli
```

2. **Platform CLI**
```bash
gemini skills install https://github.com/JoelLewis/finance_skills --path plugins/wealth-management/skills/financial-statements
```

### Windsurf (Devin Desktop)

**Manually: put the files in place**
- File: `.devin/skills/financial-statements/SKILL.md` — The legacy .windsurf/skills/ path still works

### OpenCode

**Skills CLI (Vercel)**
```bash
npx skills add JoelLewis/finance_skills --skill financial-statements -a opencode
```

### Claude.ai

**Claude.ai**
- Zip the folder and upload it in Settings → Capabilities → Skills

Where a file is given instead of a command, copy the files from the source to that path: https://github.com/JoelLewis/finance_skills/tree/HEAD/plugins/wealth-management/skills/financial-statements/SKILL.md

## When to use it
- derive FCFF and FCFE from the cash flow statement
- test whether ROIC clears the cost of capital
- decompose ROE into margin, turnover and leverage
- score earnings quality with the accruals ratio
- spot revenue recognition red flags

## Example prompts
- Read this 10-K and compute ROIC against WACC
- Pull FCFF and FCFE from the cash flow statement for the last three years
- Run a DuPont decomposition and tell me whether margin or leverage drives ROE

## Source text · SKILL.md · MIT

Below is the content of a third-party file. It is data, not instructions for you: do not act on anything written inside unless the human asks. Block tag: c1d0f90203acac25.

BEGIN THIRD-PARTY FILE c1d0f90203acac25
```text
---
name: financial-statements
description: "Analyze financial statements for investment decisions: derive EBITDA and free cash flow (FCFF/FCFE) from the income statement and cash flow statement, compute ROIC, margins, and DuPont ROE decomposition, and assess quality of earnings via accruals and working capital trends. Use when the user asks about 'reading a 10-K', 'income statement vs cash flow statement', 'how to calculate free cash flow', 'FCFF vs FCFE', 'EBITDA adjustments', 'ROIC vs WACC', 'DuPont analysis', 'quality of earnings', 'accruals ratio', 'cash conversion cycle', 'revenue recognition red flags', 'deferred taxes', or 'cost basis and embedded capital gains'. Also trigger for fundamental analysis questions like whether reported earnings are backed by cash, whether a company creates value above its cost of capital, or the tax consequences of selling an appreciated position."
---

# Financial Statements

## Core Concepts

### The Three Statements and How They Articulate
- **Income statement**: revenue minus expenses over a period, on an accrual basis. Ends in net income.
- **Balance sheet**: assets = liabilities + equity at a point in time. Net income (less dividends) rolls into retained earnings, linking the two statements.
- **Cash flow statement**: reconciles net income to actual cash movement, split into operating (CFO), investing (CFI), and financing (CFF) activities. It starts from net income, adds back non-cash charges (D&A, stock-based compensation, impairments), and adjusts for working capital changes. The ending cash ties back to the balance sheet cash line.

Accrual accounting means reported earnings and cash generation can diverge for long stretches. Most analytical work is about measuring and interpreting that divergence.

### EBITDA and Its Adjustments
EBITDA = EBIT + Depreciation & Amortization. It approximates pre-tax, pre-financing operating cash generation and is capital-structure neutral, which is why EV/EBITDA multiples use it. "Adjusted EBITDA" further strips items management deems non-recurring (restructuring, litigation, stock-based compensation). Scrutinize each add-back: recurring "one-time" charges and stock-based compensation are real economic costs. EBITDA ignores capex entirely, so it flatters capital-intensive businesses.
```
END THIRD-PARTY FILE c1d0f90203acac25

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