§ 01
AMZN — Net Margin, Operating Margin. Open AMZN on the Ledge to see current values.
§ 02
| Section | What It Tracks | Healthy Sign |
|---|---|---|
| Operating | Cash from core business | Positive and growing |
| Investing | Capital expenditures, acquisitions | Negative (spending to grow) |
| Financing | Debt, dividends, buybacks | Depends on strategy |
§ 03
Free Cash Flow = Operating CF - CapEx
§ 04
Look up AMZN and compare **Operating Cash Flow** to **Net Income**. Amazon often shows low earnings but massive cash flow.
§ 05
§ 06
A company reports $5B net income this year, up from $4B. But free cash flow dropped from $4B to $1B. What is the most likely explanation?
§ 07
Going Deeper — Cash Conversion Ratio (OCF / Net Income). Multi-year CCR below 1.0 is one of the strongest tells of deteriorating earnings quality. Lucent's CCR sat near 0.4 for years before its 2000 collapse — net income kept climbing while operating cash flow stagnated, because revenue was being booked into accounts receivable that never converted to cash. AI prompt: "Compute this ticker's 5-year average CCR; compare to industry median; identify the year with the largest divergence between net income and OCF, and explain the driver."
Five questions · AI feedback
Sit with the ideas.
A company reports $5B net income but only $2B free cash flow. Should you be concerned?
Why: