What the statements record, where they diverge from cash, and where the warning signs sit.
Accrual profit is the economics of a period; cash is the bank account. Every difference is a timing gap that the cash flow statement reconciles.
The first accounting question in any finance interview, and the foundation for every quality-of-earnings judgement.
From Accrual Accounting: How it Works & Why it’s #1 · Accounting Stuff
Judge an adjustment by whether an owner of the whole business would also get to ignore the cost.
Reading any earnings release, pitch deck or S-1 that leads with a non-GAAP measure.
From WeWork: Or the Making and Breaking of a $47 Billion Unicorn · 2021
Profit is not cash, and growth widens the gap; model the cash a business needs to grow before admiring its sales.
Any three-statement question, any growth company's cash flow, and any founder conversation about runway.
From Shoe Dog · Phil Knight
Profit is an opinion about the future; cash is a fact. When they diverge for long, find out why.
Any question about quality of earnings, accrual accounting or how a fraud can pass an audit.
From Enron: The Smartest Guys in the Room · 2005
Treat stock compensation as a cost of doing business; either deduct it from cash flow or count the dilution, and never ignore it twice.
Any technology company valuation, any adjusted EBITDA reconciliation, and the interview question about non-cash charges.
From Session 5: Accounting Inconsistencies · Aswath Damodaran (NYU Stern)
Read the notes before the numbers; the disclosure that matters is usually there and usually ignored.
Any model review, any quality of earnings exercise, and any short thesis.
From The Signs Were There · Tim Steer
Growth ties up cash in receivables and inventory, so model the working capital a business needs before trusting its profit.
Three-statement questions, cash flow forecasting, and any growth company whose profit and cash are diverging.
From Working Capital Explained · The Finance Storyteller