Cash flow, ROE and growth

This is lesson-collection #08 of Stock Knowledge 101, merging the former kb23–kb25 (3 mini-lessons). Read in order.

Reading the cash flow statement

This is Lesson 23/31 of Stock Knowledge 101 〔Financials〕.

• Operating cash flow: main-business cash; sustained positive = healthy; negative = warning.
• Investing cash flow: expansion/M&A usually negative (spending); judge with strategy.
• Financing cash flow: borrowing/issuance positive, dividends/repayment negative.
• Free cash flow = operating CFO − capex; long-term positive and growing = quality cash cow.

📌 Net profit can be dressed up; operating cash flow is hard to fake; long divergence needs explanation.

ROE and DuPont analysis

This is Lesson 24/31 of Stock Knowledge 101 〔Financials〕.

• ROE = net profit/equity; how much a shareholder earns per 1 yuan, Buffett’s favourite.
• DuPont: ROE = net margin × asset turnover × equity multiplier (leverage).
• High ROE from high margin (Moutai) is steadiest; from high leverage (banks) carries risk.
• Long-term (e.g., 5 yrs) ROE>15% and stable usually flags a good business.

📌 Good company = high ROE and sustainable; use DuPont to see which of margin/efficiency/leverage props it up.

Growth & quality metrics

This is Lesson 25/31 of Stock Knowledge 101 〔Financials〕.

• Revenue/earnings growth: is the company getting bigger and stronger; watch base effects.
• Operating CFO / net profit (cash-collection ratio): closer to 1 better, profit has cash behind it.
• R&D expense ratio: for tech/semis, input intensity decides future competitiveness.
• Receivables growing faster than revenue = possibly inflating sales on credit; quality suspect.

📌 Growth = growth rate, quality = cash-collection ratio; receivables outrunning revenue is a red flag.

⚠️ This article is a methodological illustration and does not constitute any investment or trading advice. Markets are risky; decide with caution.