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The Dividend School: Profit, Income, Cash Flow and Dividend Analysis

The Dividend School is a series of tutorials aiming to gear investors focusing on dividend stock investments to start dividend investing from scratch. Investors will acquire a solid grasp of the necessary skill set to plan, create and maintain a dividend portfolio as well as holistically analyze dividend stock investments.

Introduction

The life blood of dividends comes from the earnings and cash flow generated by the business. Many investors new to this would have been confuse by the terms thrown around:

  1. What is the difference between income and cash flow?
  2. What is EBITDA and Free Cash Flow?
  3. Which metric tells me the dividend is safe?
  4. How do I find out these figures?

Comprehensive explanation on Net Profit, EBITDA, Operating Cash Flow and Free Cash Flow

2 years ago, we compile a guide to explain the relationship between these often use terms. The feedback we get is, while it is useful it is missing certain information such as where investors can source these figures to help them compile a profile to analyze the sustainability of the dividends.

We did a revamp by updating the article with what we have gain since this 2 years of dividend investing.

The result are the following topics

  1. Why do we want to know Net Profit, EBITDA, Operating Cash Flow and Free Cash Flow?
  2. What are their definition?
  3. What is the formula to derive these metrics?
  4. Where can you find them in the annual report?
  5. The role of depreciation and amortization in relation
  6. The difference between maintenance and investment capital expenditure
  7. Cash for Management – a comprehensive metric to determine sustainable dividend
  8. What are the signs of healthy and unhealthy cash flows

This tutorial is applicable for investors looking to grasp the fundamental concepts require to dissect and analyze financial statements to evaluate profitability and dividend sustainability.

Net Profit, EBITDA, Operating Cash Flow and Free Cash Flow in Dividend Investing >> 

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J

Saturday 14th of July 2012

More of cash flow.

j

Friday 13th of July 2012

Hi dizzt, thanks for the post. I came to know that company's direction and managment's decision would affect the financial statement and income statement. How do you analyse the information on company's direction and management's decision on large projects?

Drizzt

Saturday 14th of July 2012

hi j, are you refering in terms of cash flow? or more as a general analysis?

YH

Saturday 7th of July 2012

hi Drizzt,

Read your post and saw that you explain on certain items on the financial statement. Like to check have you come across an item in income statement know as unusual expense? Is there a way to check what make up the unusual expense for the particular year.

Eg: 2007 2008 2009 2010 2011 Unusual Expense 0 5.47B (814.89M) 519.55M 2B EBIT after UE 0 (5.47B) 814.89M (519.55M) (2B)

Drizzt

Saturday 7th of July 2012

hi YH! I seldom come across that. Which annual report is that?

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