Cost Structure & Expense Trends Deep Dive
Peel apart the cost structure of a stock to understand how expenses really grow
Last updated: 17 September 2025
Objective:
This prompt provides a comprehensive extraction and analysis of a company’s cost drivers, line by line. It identifies one time vs recurring expenses, presents a common-size breakdown of revenue to net margin, sources of operating leverage, provides interpretation and explanations of drivers in each cost line and shows modeling inputs that can speed your modeling of a company’s costs.
Explanation:
Understanding a company’s cost structure is the fastest way to judge margin durability, operating leverage, and the real constraints on profitable growth. This analysis turns the last two annual reports and the most recent interim filing into a common-size P&L with trend and driver diagnostics, linking each expense line (from COGS through tax) to what actually moves it: one-time vs recurring expenses, wages and headcount, supplier terms, input commodities, logistics, software spend, and policy choices on depreciation and amortization.
You’ll see which costs are outrunning revenue, where efficiencies are emerging, and how capex, interest, and effective tax rates shape free cash flow. By quantifying drop-through, effective interest yields, and tax bridges, the output helps you pressure-test guidance, compare peers on like-for-like terms, and build scenarios for margins under different pricing, mix, and inflation paths. In short, it equips you to form a confident view on a company’s future earnings.
As always, be aware that models can make mistakes. At each step, examine the response and challenge information or conclusions that appear erroneous before proceeding to any subsequent steps. If in doubt use a second model with the same prompt to verify the information and generate challenge questions and answers (CoVe process) to correct interpretations of data. Subsequent prompts can be added in a chain of thought conversation to have the model adjust its analysis if errors are identified.
Link to blog post explanation:
N/A
Preferred Model(s):
ChatGPT-5+
Important Execution Notes:
Attach to the prompt the last 2 years annual reports / 10-Ks (with financial notes) and last Quarterly / Semi-Annual report (10-Q or equivalent)
Sample Output:
DownloaCopy/Paste Prompt Set:
Important note: Subscribers can use this prompt set for their own analysis. However, the prompt is copyrighted by The Inferential Investor, paywalled, and must not be shared without permission.