Three rules. Reading an earnings print without falling for the headline.
A quarter is two reports stitched together. Most people read the first. The second is where the verdict lives. These three checks take ten minutes and survive every market cycle.
01
Net Profit is an opinion. Cash from operations is a fact.
The income statement is built on judgement calls. Revenue recognition timing. Depreciation method. Provision sizing. Inventory valuation. The cash flow statement strips those judgements out and reports what actually arrived. If the two disagree for three quarters in a row, the judgement was the story.
02
Read working capital changes before the bottom line.
Receivables growing faster than revenue means the customer paid you with a promise. Inventory growing faster than cost of goods means the warehouse paid you with cardboard. Payables shrinking means the supplier got paid faster than usual. Three lines in the cash flow statement, none of them in the press release, all of them ahead of price.
03
CFO over PAT below 0.50 for three quarters is a cliff, not a slowdown.
One quarter of weak conversion is noise. Two quarters is a tilt. Three quarters running is the market telling you the earnings line is being financed somewhere off the income statement. By the time the auditor flags it, the multiple has already compressed twice.
Closer
The income statement tells you what management chose to recognise. The cash flow statement tells you what arrived in the bank. Two reports. Same quarter. One is a paragraph. The other is the verdict.