Income investors often use the Cash flow as key element of their stock valuation. The figure is calculated as net income plus several positions from the income statement.
- Start with net income.
- Add back non-cash expenses. (Such as depreciation and amortization)
- Adjust for gains and losses on sales on assets.
- Add back losses Subtract out gains Account for changes in all non-cash current assets.
- Account for changes in all current assets and liabilities except notes payable and dividends payable.
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| Source: http://www.investopedia.com |
The problem is often the inventory. If sales run flat and inventory grows, there could be a massive risk for investors.
Goldman’s research shows that in a number of sectors inventory growth is outpacing sales growth and is also above normalized levels. Elevated inventory levels could help companies manipulate cash flow figures throughout 2016.
Here are a few stocks, discovered by Goldman Sachs where inventory sales could outpace sales growth...
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| Source: http://www.valuewalk.com, Goldman Sachs |
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| Source: http://www.valuewalk.com, Goldman Sachs |
