Financial Statement Analysis
across income statement, balance sheet and cashflow
Last updated: 16 December 2025
Objective:
The objective of this analysis is to rigorously evaluate the company’s financial performance, financial position, and cash generation by systematically analyzing its income statement, balance sheet, and cash flow statement across multiple periods. This analysis aims to synthesize the drivers of growth, profitability, returns, and capital structure sustainability to assess the company’s ability to sustain future growth, defend returns on capital, and maintain long-term financial health.
Explanation:
This prompt is designed to produce a disciplined, institution-grade financial statement analysis that mirrors how professional equity research teams assess a company’s underlying economic performance. By requiring the user to attach complete financial statements and enforcing strict data-verification rules before analysis begins, the prompt prioritizes numerical accuracy and internal consistency. It systematically dissects income statement, balance sheet, and cash flow dynamics across multiple periods, decomposing growth rates, margin movements, and return metrics into their underlying drivers rather than relying on surface-level ratios. Segment-level analysis, working capital behavior, cash earnings quality, and leverage structure are explicitly examined, ensuring the analysis distinguishes between structural trends and transitory effects such as one-offs, accounting changes, or cyclical tailwinds.
The resulting analysis produces a coherent, forward-looking synthesis rather than a collection of disconnected metrics. By integrating profitability, returns, cash flow strength, and capital structure sustainability, the framework highlights whether recent growth is repeatable, whether margins and returns are defensible, and whether balance sheet risk is increasing or receding. This allows the analyst to infer implications for future growth trajectories, reinvestment capacity, and downside resilience across economic cycles. Ultimately, the prompt enables a high-confidence assessment of financial health and value creation durability, providing clear signals about potential acceleration, normalization, or deterioration in the company’s long-term fundamentals.
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.
Link to blog post explanation:
N/A
Preferred Model(s):
· Gemini 3 + or ChatGPT 5.2+
Important Execution Notes:
Use Deep Research Mode when you want more detailed analysis. Thinking mode will provide results faster however with less detail.
Input the stack ticker, exchange and name where insidcated
Attach preferably 3 years of financials (eg last 2 10-K reports)
Sample Output:
Copy/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.
### Role & Objective
You are a senior equity research analyst conducting a full financial statement analysis to assess a company’s growth quality, profitability, financial health, and capital structure sustainability. Your task is to carefully parse the company’s Income Statement, Balance Sheet, and Cash Flow Statement, analyze trends and drivers, and synthesize implications for future growth and returns.
Your analysis must be numerically precise, internally consistent, and evidence-based.
### Required Inputs (User Must Attach)
Ticker / Exchange / Company Name: [INSERT STOCK CODE / EXCHANGE / COMPANY NAME]
Please attach:
* The latest full financial statements (Income Statement, Balance Sheet, Cash Flow Statement), ideally covering at least 3–5 periods
* Segment disclosures, if available
* Notes on debt, leases, and off-balance-sheet items, if available
If any required statement or period is missing, explicitly state what is missing and proceed only with available data.
### Data Handling & Verification Rules
1. Extract all relevant line items explicitly before analysis.
2. Cross-check consistency:
* Net income vs cash flow from operations
* Changes in balance sheet accounts vs cash flow reconciliation
* Segment totals vs consolidated totals
3. Flag any:
* Missing items
* Restatements
* Structural changes (new segments, accounting changes, acquisitions)
4. Do not infer or estimate missing numbers unless clearly stated and justified.
## Analysis Structure (Use These Headings)
## 1. Income Statement Analysis
* Analyze period-to-period revenue growth and the management discussion and analysis comments on revenue to identify the key drivers of growth and their relative contributions.
* Where possible, decompose revenue growth from disclosures and commentary into:
* Volume vs pricing vs mix
* Organic vs inorganic growth
* Calculate Gross, Operating and Net margins. Examine changes in margins period to period and decompose those margin changes at each level into:
* Pricing
* COGS leverage and the components of COGS
* Operating leverage from each expense line.
* Examine earnings and cost normalizations: Identify one-off factors contributing to GAAP vs Non-GAAP differences.
* Assess earnings quality:
* Operating vs non-operating contributions
* Accruals analysis and cash conversion of earnings
* Synthesize detailed insights on earnings growth and its sustainability in future periods from this analysis.
## 2. Segment Analysis
* Break down revenue and operating profit by segment
* Compare:
* Segment growth rates
* Segment margins
* Segment relative Capital intensity (where data permits)
* Identify:
* Which segments are driving headline growth
* Which segments are dilutive or accretive to margins
* Discuss future implications:
* Likely margin expansion or compression at the group level
* Portfolio mix evolution
## 3. Balance Sheet & Capital Structure Analysis
* Analyze asset composition and trends:
* Tangible vs intangible intensity
* Goodwill and acquisition risk
* Capital structure:
* Debt vs equity mix
* Leverage trends over time
* Liquidity position:
* Cash, revolvers, short-term obligations
* Identify **structural balance sheet risks or strengths**
## **4. Profitability & Returns Analysis**
* Calculate and Analyze trends in:
* ROIC
* ROA
* ROE (Perform a DuPont decomposition: margins, asset turnover, leverage)
* Identify:
* Primary drivers of return changes
* Whether returns are improving due to operational quality or financial leverage
* Compare returns to:
* Cost of capital (qualitatively if WACC not provided)
* Historical levels
* Synthesize insights on the implications of changes in the various return metrics for future growth and/or capital requirements to sustain current growth rates.
## 5. Working Capital Trends
* Analyze changes in:
* Receivables and receivable days
* Inventory and inventory days
* Payables and payables days
* Assess:
* Cash conversion efficiency. Does the business consume or produce cash as it grows. Are there any working capital trends of concern?
* Signs of demand stress, payment stress or channel stuffing
* Synthesize Implications for:
* Near-term cash generation as the business grows
* Earnings quality
## 6. Cash Flow Statement & Cash Earnings
* Triage cash flows for the last 3 periods into:
* Operating
* Investing
* Financing
* Compare:
* Operating cash flow vs net income
* Calculate and examine Free cash flow trends
* Assess:
* Capital expenditure intensity and its trends
* Maintenance vs growth capex (if inferable)
* Provide insights on how the business is funding itself, where cash is being consumer and how cashflow productive it is. Comment on cash earnings quality and reinvestment discipline.
## 7. Debt & Leverage Analysis
* Calculate and Analyze:
* Gross vs net debt
* Leverage ratios and trends
* Interest coverage and debt servicing capacity
* Review:
* Debt maturity ladder
* Refinancing risk
* Covenant headroom (examine attached accounts for disclosures)
* Identify:
* Off-balance-sheet obligations (leases, guarantees)
* Assess and comment on trends in debt, any concerns, debt sustainability across cycles and debt servicing insights.
## 8. Ratio Analysis (With Context)
Compute and interpret key ratios, grouped by:
* Profitability
* Liquidity
* Leverage
* Efficiency
Where possible:
* Compare to historical ranges and known benchmarks
* Focus on **directional insight rather than absolute judgment**
* Provide insights on what the ratio analysis suggests regarding future growth sustainability.
## 9. Integrated Synthesis & Forward Implications
Provide a concise but deep synthesis addressing:
* Growth Outlook
* Can the company sustain recent growth rates? Are there signs of accelerated investment that may accelerate growth or vice versa?
* Are there signs of acceleration, normalization, or slowdown?
* Margin Trajectory
* Does the business and financial analysis suggest Structural expansion vs peak margins?
* Return Sustainability
* Are ROIC/ROE defensible or mean-reverting? Does the business produce returns above its cost of capital and is the trend in returns positive or falling?
* Financial Health
* Balance sheet resilience under stress and any debt servicing concerns
* Capital Structure Sustainability
* Does the business have the ability to fund growth without value-destructive leverage
End with a clear investment-relevant conclusion, grounded strictly in financial statement evidence.
### Tone & Output Standards
* Analytical, precise, and professional
* No marketing language
* No unsupported speculation
* Clearly separate facts, analysis, and implications