Shadowing Practice: Analyzing Statements of Cash Flows 1 (2025 CFA® Level I Exam – FSA – Learning Module 4) - Learn English Speaking with Video

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Hey, it's Jim and this is level one of the CFA program,

the topic on financial statement analysis and the learning module on analyzing cash flow statements part one,

which implies that there's going to be an analyzing cash flow statements part two.

In this first learning module, what we're going to do is we are going to remind ourselves

that we just watched the analyzing the balance sheet and analyzing the income statement, we're going to take it one step further.

Recall that I told you how important it was to look at trend analysis back in those two previous recordings.

What we're going to do now is we're going to take the accounts inside of the balance sheet

and the income statement from one year to the next and compute those changes.

And from those changes, among some other assumptions in there, we're going to reach in and we're going to extract those accounts that have a direct impact on cash flow.

So we're going to compute the operating cash flows, the financing cash flows, and the investing cash flows.

And if you can do those three things, that pretty much covers almost everything that we're going to do inside of this learning module.

In analyzing cash flow statements two, what we're going to do is we're going to take that operating cash flow that we're going to compute here today.

And we're going to use it as a basis to compute something that's called free cash flow,

which we're going to use to make capital budgeting decisions and maybe some other kinds of decisions.

So, of course, these two learning modules are paired.

They go hand in hand.

So pay close attention to both the accounting side of this learning module

and the finance side of this learning module because we're going to use both of those in the future.

Just for learning outcome statements, we're going to link the income statement and the balance sheet.

I'm going to do that here in just a second, but I think I did that in those previous recordings.

And then probably by far the most important LOS is that second one there.

We're going to look at the direct method and the indirect method, and that's going to tell us everything we need to know about the change in each of these accounts

and its impact on cash.

and then we'll take a look at some important differences between the U.S people and the international people.

I'm going to go ahead and ask you to get your phone out and take a picture.

I think it's two slides at the end of this slide deck.

So this is a quick reminder of what I was telling you in those two previous recordings.

So remember I said to you that that balance sheet, which has assets on the left-hand side, liabilities on the top right, and equity on the bottom right,

What we could do is we could take that.

Now, remember, I said, don't tell your accounting professors I said that.

We could take that income statement and shove it into the bottom right portion of equity.

We could.

I mean, accountants probably don't like that.

But essentially, what's happening is you're taking the net income from the income statement and then transferring it over into retained earnings.

So the income statement is almost like a sub-equity account.

But then skip over to the far right there.

Here is the statement of shareholders' equity, which of course belongs on the bottom right side of the balance sheet,

but it's a separate account in and of itself.

We don't spend too much time on that here in these two learning modules.

But then look at the purple column in there.

This is what our goal is.

What we're going to do, what was that word I used just a minute ago?

We're going to extract the changes in balance sheet and income statement items to be able to compute cash flows from operations,

from investments, and from financing.

And then we're going to use that as a basis when we get into the next learning module.

So let's go ahead and start with just a really good example of the differences between, and notice that LOS, it says, you know, link.

Remember I told you, and I bet you learned this from your very first accounting professor, the balance sheet is like taking a camera.

You guys have cameras or you just have phones these days?

I still have an old camera.

I love getting out my camera.

And my family always says, dad, you're operating in a previous century.

But I take beautiful pictures with my camera.

So click, click.

So look, point in time, balance sheet 2024, balance sheet 2025, over on those two sides.

In the middle, in the middle, the income statement and the cash flow statement and the shareholders equity statement, they're like a movie.

You guys know movies like the old time movies.

So those are like taking a movie of the operations in between two points of the balance sheet.

What an easy question that would be on the exam.

Now, remember this is called, what did we do before?

We did analyzing balance sheets, analyzing income savings, and now we're analyzing cash, right?

We're calling it this cash stuff.

And almost every beginning an introductory finance textbook will have some reference to the following term.

The textbook that I use says cash is king.

And that cash is king concept is important throughout the entire, all the chapters inside of the textbook.

And so of course we're worried about cash and then cash equivalents.

You know, those are super liquid assets.

So how do we go from beginning cash to ending cash?

Well, this makes perfect sense.

Just like you guys have beginning cash, let's say on Monday morning at the beginning of your week

and then you have ending cash on Sunday night and what do you do?

You know you have cash receipts from all the stuff that you do during the week.

Well that's operating, investing, and financing for a business and then you have cash payments out there for operating,

investing, and financing and that's how you get the ending cash balance.

I mean really that's just super simple math.

It gets a little bit more interesting when we try to figure out beginning and ending retained earnings.

And so this is another reason why I was telling you about that.

You know, the income statement, what happens?

You take the income and you throw it into retained earnings.

So notice that equation there.

You start with beginning retained earnings and here comes that net income right over from the income statement.

And then this is what we know.

And there's a learning module on dividend policy and dividend payments.

Dividends are paid out of retained earnings, so you have to subtract those things to get ending retained earnings.

These would be really super easy questions on the exam.

Super easy.

You probably don't even need your calculator on the exam to do those.

All right, let's take a look at the difference between what we're doing back in the old days when I say oldies, you know, like go back centuries,

you know, when businesses were trying to figure out what to do, you know, they had cash and then they had cash.

But at some point during our life, someone came along and said, you know what, let's use the accrual method where it's kind of like cash, or maybe it's a promise of cash,

or maybe there's cash somehow involved.

So what we need to do is we need to look at this, the accrual basis of accounting.

So we have current assets over here on the top left, current liabilities over on the top right,

and what happens when those things change and how do they impact cash flows.

Look at our little illustration on the bottom right there.

So look at the cases there.

Accounts receivable increase means that accrual-based revenues exceed those actual cash collections.

What does that mean?

That just means that you have a bunch of sales, and instead of getting cash, you get accounts receivable.

So sooner or later, you're going to receive those accounts receivables in cash.

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Now, of course, let me parenthetically say some of those people are probably not going to pay us, but that's a conversation for a different day.

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Now, if those accrual expenses are lower than the cash pays, then those accounts payable decreases.

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So you've got an impact from what goes on on the income statement, right?

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Accrual expenses, and then that results in a lower accounts payable.

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And then deferred revenue, we'll talk about that in just a little bit, but deferred revenue means something like when revenue is recognized,

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when you fulfill your obligations, and we have an example here in just a second.

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So what does this tell us?

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We're going to look at a complete example here in just a second.

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But what we need to do is that we need to make sure

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that we are on top of what happens with beginning accounts receivable and beginning accounts payable,

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and then how those payments go in and out and how they end up as ending accounts receivable and ending accounts payable.

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So let's go ahead and take a look at just a super quick example here.

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Apex Manufacturing custom piece of machinery delivered in two months, $1,200.

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All right.

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So on July 1st, this client makes a down payment of $400, agrees to pay the remaining $800 upon delivery.

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All right, so what happens here?

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Think about what this means.

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We really haven't done anything yet if we're Apex.

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Someone has sent us $400.

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I mean, we signed a contract agreeing to do something.

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We haven't done anything yet, but we've agreed to do something.

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So they send us $400 today.

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So that's kind of like, hey, you know what?

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We'll send you $400 just so you can get started.

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And then when you deliver, we'll pay you the rest.

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So what happens?

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What does this look like?

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So those of you who have accounting backgrounds, you're going to know exactly what this slide looks like.

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Those of you who can't remember, you know, your little journal entries back from accounting, and thank heavens that I did have,

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that I did pursue that undergraduate accounting degree, because whenever I'm struggling with something, I just go back and say, what's the journal entry?

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And if you figure out what the journal entry is, then all this other stuff falls into place.

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so what happens on July 1st well we receive the cash

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so you got to put that in cash right

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so that's a debit to cash

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and then you have to have some kind of offsetting credit account

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and the accountants have come up with this thing called a

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liability right on the top right hand side of the balance sheet

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and we're going to call it a deferred revenue which of course is is a liability so that increases by $400.

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So this is important here.

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Note, nothing happens on the income statement, right?

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We haven't earned that revenue.

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So deferred revenue, some people call it unearned revenue, some people call it, you know, whatever they want to call it,

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but make sure you know that it's a liability has no impact on the income statement.

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But of course, of course we received the cash.

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So we have to report that on our statement of cash flows.

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So then what happens in September, Remember, we deliver the stuff,

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whatever that machine was, and then we receive the extra 800 in cash.

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So the debit has to go into cash again.

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And then what happens to that unearned revenue?

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Well, we need to debit that for 400.

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So we have two debits on the balance sheet.

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And note that that deferred revenue, it was a credit, and now we're offsetting it with a debit.

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So those things go away.

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So the question then becomes, well, what do we do with that $1,200?

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Well, now it shows up on the income statement.

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So increase revenues by $1,200.

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So let me just do that again.

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So we have a debit of $800 for cash, debit of unearned or deferred revenue for $400,

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and then the credit of $1,200 for revenues.

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And then of course, we get the $800 in cash.

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So on that final column over there, we've got to report an increase in cash from, and these are operating activities.

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Remember, operating activities are the activities associated with the operations.

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That's one of those great student answers that includes the question inside of the answer.

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But the operations, think of the operations as the assets, as the product lines.

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What are we producing?

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When we generate cash from operations, we call it operating cash flow.

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Here's a good summary page of what I was saying just a few minutes ago.

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We have these operating cash flows.

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So there we go.

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Cash generated from the assets.

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What did I just say?

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Core business.

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There's a whole bunch of examples there.

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You can read those.

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But how about investing activities?

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So these are what goes on somewhere on the left-hand side of the balance sheet, long-term assets.

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So what can we do?

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We can buy machinery.

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We can buy technology.

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We can buy software.

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We can do all sorts of other things.

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And then financing activities.

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This is over on the right-hand side of the balance sheet.

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What do we do?

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We issue shares of stock.

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We issue bonds.

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We can make dividend payments.

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We can do all sorts of stuff.

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So I think this is a really good question.

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And by the way, at the end of the learning module, there's only, I think it's 11 questions at the end of this one.

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And almost every one of them has in the question stem, some kind of a financial statement, either a balance sheet or an income statement or both.

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Now, they're not long like they are inside of this learning module.

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They're kind of abbreviated, but make sure you're used to looking at financial statements

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and then be able to answer a question based on those kinds of things.

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And there are some really good questions at the end of the learning module.

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I'll address that at the end of this recording.

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Let's do that LOS that relates to the direct and indirect methods.

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And I'm going to make an editorial comment here.

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If you do any research about the difference between these two and the commonalities and how businesses select which one to use,

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you'll read, and by the way, I don't recommend that you go ahead and do a Google search on this.

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But most businesses use the indirect method.

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But if you look at that learning module, those questions at the end of the learning module,

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there are a handful of questions that are in this first way that we're going to do it.

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So I really don't have any advice for you about which way to focus on.

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I'm just going to say, you know what?

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The LOS says direct and indirect, so you need to know all this stuff.

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But I'll give you a piece of encouraging words here is that the more you know about direct and indirect methods, the better prepared you're going to be to compute

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that free cash flow in the second cash flow learning module that we'll do here next.

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All right.

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So there's operating activities, investing and financing activities.

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So what we're going to do is we're going to work through a pretty comprehensive example, and it'll take us almost all the way to the end of this slide deck.

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So we have the Kenya Tea Processing Company here.

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So be prepared to see a question stem in which you're given an income statement here.

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If you need a reminder of what goes on that income statement, go ahead and pause the video and work your way down the left-hand side.

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But, you know, we've got revenues and we take out expenses and then we have net income down at the bottom right.

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Here's the balance sheet.

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So we have and I always say top left.

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So there's the top left, which are current assets and then the bottom left, which are long term assets.

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So that's just the left hand side of the balance sheet.

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And notice what I did for you.

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We bolded in red over there some of those changes.

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We're going to use some of those changes as we go through, I believe it's six of these steps to get cash flow.

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But what did I say earlier?

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We have 2022, then we have 2023, and that column over on the far right is the net change.

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Now I'm guessing the Institute will give you that final column of the net change,

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but there's no reason that it has to on the exam.

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So be prepared to go ahead and now they can't make you, the Institute can't make you do a thousand of these things, net changes for one question.

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So be prepared, you know, to subtract one year from the next for maybe one or two in the question stem.

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And all right, so there's the balance sheet on the left-hand side.

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Here's the balance sheet on the right-hand side.

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notice that assets minus 364 on the down the bottom right there notice liabilities

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and equities minus 364 so that fundamental accounting equation holds true

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so let's go ahead and take a look at the direct method

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and how we're going to prepare these cash flows from operating activities

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so So notice at the top left there is a circle one.

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So I think we have six of these things.

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And the reason that we divided this up into six is because, I mean, the learning module does this as well, but the problems at the end of the learning module are specific.

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There's three or four of these, not all six, but three or four of these.

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So this is what I was saying just a minute ago, that you ought to be prepared to do each one of these six on the exam under this direct method.

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So I think the more likely question is one of these six

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or two of these six rather than all of them together.

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I think on the exam, you're more likely to be asked to use the indirect method to compute the cash flow from operating activities.

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And so let me show you what I mean here as we go through this example.

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So let's determine cash received from customers.

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So we can do this one of two ways.

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These are super easy, both of these ways.

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Start with the revenue and then subtract the increase in accounts receivable.

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So there's the 39 and you get 25,417.

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And you can start with beginning accounts receivable and then subtract out ending accounts receivable and you get the same 2514.

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Now that 39 up there, let me just go back here.

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I am not going to go back to each one of these.

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So you may want to pause the video and go back through the slide deck.

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So there's that change in accounts receivable, which shows up right there.

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So there you go.

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Cash received from customers.

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That ought to be a good one here.

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Now, how about cash paid out to suppliers?

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And so So we can do this, you know, almost the, let me go back here.

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So if you take a look at these two quick equations, you know, if you just take the reverse of them, if you take the reverse of them, you get cash paid to suppliers.

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You're focusing, of course, on the right-hand side of the balance sheet.

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So what we can do is we can start with those cost of goods sold increase in the inventory.

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So there's the 169.

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add those together, you get 11, 5, 14, and then the increase in accounts payable, there's the 300.

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I'm not going back to those previous financial statements, but I have them in red, 169 and 300.

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So let's do this real quickly.

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So what do we have?

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We have collections of 25.

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We have payments of 11.

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So then we need to ask ourselves the question, you know, what other kind of stuff do we do?

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You know, this is kind of like, you know, when we get to capital budgeting learning modules, I'm going to go ahead and make a comment that,

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you know, we like positive net present value projects.

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And I'll say something like, hey, what business's goal, one of the goals of the business is to make something for pennies and sell it for dollars.

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So this difference between the cash received from customers

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and cash paid to suppliers is kind of like an estimate of making something for pennies and selling it for dollars.

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Now, it's not complete, but it gives you an idea of the margins and how profitable a company is.

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So then we need to do some other stuff, right?

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Well, we don't just make these things or distribute these things for free.

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So we need to figure out the cash paid to employees.

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So we start with the wage expense and then we go ahead and subtract out that change.

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That change is negative.

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Cash paid to employees is $41.90.

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You can swing back and see I have that 10 in bolded red.

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How about cash paid for other operating expenses?

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So let's go ahead and take a look at those other operating expenses.

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That's $37.50.

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And so what do we have?

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We have a decrease in prepaid expense.

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We have an increase in other accrued, $45.30.

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These are bolded in red back in the previous financial statement.

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So there's cash paid for other operating expenses, $36.75.

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Interest expense, there's 10.

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There's a decrease in interest payable.

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So cash paid for interest is $2.60.

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and then finally for income taxes, $1509, $5.

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That's bolded somewhere back in that previous financial statement.

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So you have $1504.

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Now, what I don't want you to do right now

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is I don't want you to go back and take a look at the, whoops, I don't want you to sum the 1, 2, 3, 4, 5, and 6.

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We're gonna do that here in just a second.

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But if we sum the 1, 2, 3, 4, 5, and 6, we'd get a number.

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But I think

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that what the Institute is trying to do in this learning module is getting you prepared to answer questions on one,

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two, three, four, five, and six separately.

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So these should be pretty straightforward stuff.

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now let's go ahead and move over to the indirect method

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which if you look at this slide and let me do this here additions

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and subtractions you're thinking wait a minute jim didn't you tell me earlier

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that the indirect method is maybe a little bit more straightforward

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and i did i may have said

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that for me the indirect method just the way i think

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and just maybe the way i was trained this makes much more fluid sense to me.

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So we have to do a bunch of addings and subtractings from, and we're just going to start with net income.

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So you start with that net income number

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and you add a bunch of stuff and then you subtract a bunch of stuff.

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And what are you doing?

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We're subtracting a bunch of stuff and adding a bunch of stuff that's related to cash from those operations.

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So look at all of those things here.

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What you need to do is make sure that you're aware of, look down at the bottom there.

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This is what is the most challenging, I think, changes in working capital.

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All right, let's work at an example here.

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Are you ready?

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So going back to our T company, there's our net income that we got from the income statement, 3522.

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And then the very first thing that we do is we add back depreciation because let me just remind you

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that depreciation expense is a non-cash expense.

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Now, the accountants will say to you

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that the depreciation expense is the initial cost of the asset

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and it's expensed over the life of the asset so that the revenues generated by that asset match the expenses.

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This depreciation expense over its life is just a result of the matching principle.

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Now, of course, that's true.

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Can't argue with that.

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I mean, the accountants, they know what they're doing, right?

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However, as you look at this from a financial analyst's perspective, I'm going to give you a different definition of depreciation expense.

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Depreciation expense is used solely to lower the tax liability over the life of the asset.

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And that's what depreciation expense is, non-cash expense.

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So you have to add it back in.

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So then, let me just go back here.

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Then we have to do all of these additions and all of these subtractions.

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Now, notice number one there, non-cash items.

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So in this example, we just have depreciation.

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But you can have amortization of intangible assets,

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which we'll talk at length about in some other learning module where we have trademarks and we have goodwill.

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These intangible assets, they're amortized.

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If we have oil or gold, we deplete that thing.

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And so, you know, boy, for those of you who are accountants and are CPAs out there, I want you to close your ears and don't listen to what I'm going to say here in my brain,

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in my little brain, and I think this is helpful.

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I think of depreciation and amortization and depletion as all the same thing.

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Now, you depreciate fixed assets, right?

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You amortize intangible assets and you deplete natural assets.

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So they relate to different kinds of initial costs of assets, but essentially from a financial analyst perspective,

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they all do the same thing.

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And then don't forget amortization of a bond discount.

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We'll talk about that when we do the bond chapter.

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So if I go back here, in this case, all we have is depreciation expense, but be prepared for amortization or depletion.

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So then we need to do some non-operating stuff.

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Loss on sale or write down of assets.

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So here we have a gain on the sale of equipment, And that is, that's 220.

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And then we list all of these assets and short-term assets and short-term liabilities, all of those changes.

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So if you look at those changes there, 39, 169, all those things down there, those are the bolded red numbers that I gave you back in that previous,

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in that previous, one of those previous slides.

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all right we're not done that yet

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but what we're going to do is we're going to take

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a look at how we do all this with the direct method all right

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so what were we back here so we did the 3522 we did the 1100

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so let's figure out this gain on sale of equipment

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so let's start at the top right how do we get

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that 220 now that was given to us somewhere in one of those statements

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but we start with the equipment balance and then we add the 500 of purchase equipment and then the ending balance.

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So that gets us 200.

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Swing that back over into the red, that gets us 200 of historical cost of equipment sold.

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Then we need to figure out the accumulated depreciation on that.

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And so you can see the bottom right there.

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That's just a simple calculation.

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So if you subtract 200 from 200, you get zero.

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And then the gain on sale of equipment, there's the 220.

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Okay.

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So cash received from that sale of equipment.

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Now for this cash paid for the purchase of equipment, we don't get that from the financial statement.

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So notice we put over in the red block that somewhere in the financial notes, and this would have to be given to you in the question stem that we paid,

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we paid a million dollars in there.

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So there we go.

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Cash paid for the purchase of equipment.

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Remember, these are in thousands.

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So what do we do there?

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Oh, so we just take the 220 and subtract out that 1,000 and that gets us 780.

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Now, how about cash flow from financing?

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Well, cash paid to retire long-term debt.

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That's the 800.

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Let's go ahead and show that.

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Where's that thing right there?

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So here's the button.

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Let me go back here quick.

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So here's the left-hand side of the balance sheet.

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Here's the right-hand side of the balance sheet, $2,700 down to $500.

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That gets us the $800.

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How about cash paid to retire common stock?

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Well, let's find that here.

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So there's left-hand side.

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So here's the right-hand side.

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So there's $3,800 and $4,500.

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That gets you the $700.

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So you can see in this slide, there's the $800 for long-term debt and there's the $700.

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So that's negative, right?

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cash paid for dividends.

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So we need to kind of work backwards into what I was saying earlier.

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There's the equation up there.

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So 3305, add that net income, subtract out the ending retained earnings,

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and you get the 2721.

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And so if you do all that stuff there, you get 4211, and there's the net increase in cash.

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That's a purple number.

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Go back to that first financial statement.

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You'll see that change in cash.

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That was purple.

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We couldn't make this 73 purple because then it would clash with the blue background.

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And so there's our, let me go back here.

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So there we go.

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Cash balance of 20.

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At the beginning of the year, you add the 73 and you get 1327.

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So let's go ahead and put together this entire cash flow from operating activities.

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So you do all this stuff that we just did.

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And by the way, I agree, this is going to, you know, I went through that fairly quickly.

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So I'm guessing you pause the video and went back and, you know, kind of verified all those numbers.

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But look at that bottom net net cash provided from operating activities, 4574.

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So what I want you to do right now is I want you to go pause the video.

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I want you to get out your calculator and I want you to go back to the

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first method that we used with the 1, 2, 3, 4, and 5.

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Oops, and 6.

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Don't forget the little pinky there.

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And so go back and sum those and you'll get the 4574, which says that, of course, accountants, they always have to equal something.

428

And so whether you use direct or indirect method, you're going to get that 4574.

429

Let me go back to my editorial comment.

430

I'll let you guys figure out which one of these two methods is more intuitive to you.

431

Well, the answer to that question is that it really doesn't matter

432

because you need to do both of these four for the exam.

433

It seems to me that this LOS is clearly the least important among all of the LOSs.

434

The Institute is very clear when it says something like,

435

suppose that you're analyzing a company and you are given this cash flow using the indirect method.

436

From that indirect method, you're probably not able to examine trend analysis for cash flows

437

that go out and cash flows that go in, you know, like we did earlier. And

438

so the purpose of this LOS is to be able to

439

get us to understand how you go from the indirect to the direct method.

440

What the Institute doesn't tell you in this learning module is

441

that what you're asked to do is essentially go back and redo the direct method.

442

So let's do these steps here.

443

I'm not quite sure that this is a great exam question.

444

I think the exam question is, the better one is, why do we do this?

445

Why would we need it?

446

And this is a tool to help us be better prepared as financial analysts so that we can perform trend analysis.

447

Remember that for the exam.

448

But here are some steps.

449

So let's go back to that tea company and we're going to disaggregate net income.

450

So all that means is we're going to, here's their revenues and there's our expenses, which we know all those.

451

So there's a net income of 3522.

452

The second step is to remove non-operating and non-cash items and then break down those expenses into relevant cash flow.

453

So that's what we do at the top.

454

That first thing, we're going to remove non-operating.

455

So that's the $25,676 minus the $220, right?

456

We did the $220 earlier.

457

So that gets us $25,456.

458

The total expenses less those non-cash items, right?

459

There's that $1,100.

460

So that gets us to $21,054.

461

So let's go ahead and break those $21,054 into cost of goods sold, salaries, other interest and income tax expense.

462

So there's the $21,054.

463

Not quite sure exactly how much extra information,

464

there's some information here, but how much extra information that we have in this step.

465

And then all we do is kind of redo the direct method, which is exactly what we're doing here.

466

And there's the 50, I'm sorry, 4574.

467

Notice down at the bottom, we even say that we did this in the previous LOS.

468

So getting back to this completed statement for the direct method,

469

there we have the 4574 for operating.

470

There's the 780 from investing, and there's the 421 from the financing.

471

There's our increase in cash.

472

So there's the cash balance of 1327.

473

Now, I remember earlier on, I said, we're going to have you get your phone out.

474

So go ahead and get it out.

475

Take a picture of that guy and take a picture of that guy.

476

I'll let you do that for a second.

477

And as you're taking pictures here, remember the items on the left-hand side.

478

These are important differences between the international people and the U.S people.

479

I think it's easier just to remember the U.S people over there.

480

So, interest received and paid and dividends received and taxes paid.

481

That's all part of operations.

482

Dividends paid, that's a financing activity.

483

Bank overdrafts, that's a financing activity.

484

But then, under the international standards, we're allowed to do one or the other.

485

So, remember, well, you have a picture of this.

486

So, just go ahead and memorize this stuff.

487

and then do the same thing here.

488

Remember that both the international and the U.S people allow direct or indirect method.

489

However, there are some, you know, kind of theoretical differences.

490

Look at those two bottom points.

491

Under the international, the direct method is encouraged, and under the US, the direct method is encouraged.

492

So there are some similarities, but then there's a difference in that reconciliation of net income.

493

That's the theoretical difference that I was telling you about.

494

So the good question is probably the white box down on the bottom right.

495

And I think that takes us through all of our learning outcome statements.

496

So what I want you to do is take,

497

well, how quickly can you read through financial statements on these questions at the end of the learning module.

498

Almost every one has a balance sheet or an income statement, abbreviated one, of course.

499

So go through those 11 questions and you'll see exactly, I mean, you'll see the themes

500

and hopefully my voice will be pounding in the back of your brain when you work through these questions.

501

I think they're pretty straightforward.

502

You should be able to do those kinds of things.

503

So let's look forward to analyzing cashflow statements too, where we're going to do free cashflows,

504

which is way more exciting than what we just talked about.

505

So, hey, thanks for watching.

506

Have a great day and good luck studying.

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Financial Analysis Fundamentals: How to Analyze Financial Statements Like a Pro Part 1 | CFI Course

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Vocabulary and speaking notes for this lesson

This video has 506 sentences and 5991 words to shadow. The speech runs for 36:30. The speaker talks at a natural 164 words per minute, close to everyday conversation. 88% of the words are among the 3,000 most common in English; the rest is worth studying before you start.

Key vocabulary in this video

15 words from the video worth learning, with pronunciation and meaning:

Word	Pronunciation	Meaning
sheet noun	/ʃit/	A thin bed cloth used as a covering for a mattress or as a layer over the sleeper.
expense noun	/ɪkˈspɛns/	A spending or consuming, often a disbursement of funds.
asset noun	/ˈæsɛt/	A thing or quality that has value, especially one that generates cash flows.
module noun	/ˈmɑd͡ʒul/	A self-contained component of a system, often interchangeable, which has a well-defined interface to the other components.
indirect adjective	/ˌɪn.daɪˈɹɛkt/	Not direct
examination noun	/ɪɡˌzæm.ɪˈneɪ.ʃən/	The act of examining.
analyze verb	/ˈæn.əˌlaɪz/	To subject to analysis.
slide noun	/ˈslaɪ̯d/	An item of play equipment that children can climb up and then slide down again.
liability noun	/laɪəˈbɪlɪti/	An obligation, debt or responsibility owed to someone.
earnings noun		Wages, money earned, income.
retain verb	/ɹəˈteɪn/	Often followed by from: to hold back (someone or something); to check, to prevent, to restrain, to stop.
dividend noun	/ˈdɪvɪdɛnd/	A cash payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually).
debit noun	/ˈdɛb.ɪt/	In bookkeeping, an entry in the left hand column of an account.
invest verb	/ɪnˈvɛst/	To spend money, time, or energy on something, especially for some benefit or purpose; used with in.
equity noun	/ˈɛk.wɪ.ti/	Fairness, impartiality, or justice as determined in light of "natural law" or "natural right".

Phrasal verbs you will hear

Word	Pronunciation	Meaning
go ahead verb	/ˌɡoʊ əˈhɛd/	To proceed with; to begin.
go back verb		To return to a place or state after having been there at a previous time.
figure out verb		To come to understand; to discover or find a solution; to deduce.
go back to verb		To stem from; to originate in.
go through verb		To travel from one end of something to the other.
get out verb		To leave or escape.
work through verb		To get past a difficult or stressful situation by thinking or talking about it.
break down verb		To stop functioning.

Pronunciation to watch

The speaker uses 129 contractions and reduced forms, such as we're, you're, don't. Say them the short way, as you hear them.

The “th” sounds: theoretical /ˌθi.əˈɹɛt.ɪ.kəl/, mathematics /mæθ(.ə)ˈmæt.ɪks/, parenthetically /ˈpæɹənˌθɛtɪkli/
The “sh” and “zh” sounds: sheet /ʃit/, examination /ɪɡˌzæm.ɪˈneɪ.ʃən/, equation /ɪˈkweɪ.ʒən/, essentially /ɪˈsɛnʃəli/, collections /kəˈlɛkʃənz/
Long words — get the stress right: examination /ɪɡˌzæm.ɪˈneɪ.ʃən/, liability /laɪəˈbɪlɪti/, essentially /ɪˈsɛnʃəli/, editorial /ˌɛdɪˈtɔːɹɪəl/, machinery /məˈʃiːnəɹi/

How to practise with this video

Listen to the whole video once without speaking and note the words you do not know.
Start at 0.75× speed, shadow it sentence by sentence, then go back to normal speed once it feels easy.
Record yourself and compare with the original, paying attention to words like sheet, expense, asset.

Grammar in this video

The structures the speaker uses most, with the exact words from the video:

Structure	In the video
Passive voice be + past participle — the focus is on what happens, not who does it	are paired · is called · are paid
Present perfect have/has + past participle — a past action that still matters now	haven't done · has sent · have come
Relative clauses who / which + clause — extra information about a person or thing	sheet, which has · left, which are · method, which is

What is the Shadowing Technique?

Shadowing is a science-backed language learning technique originally developed for professional interpreter training and popularized by polyglot Dr. Alexander Arguelles. The method is simple but powerful: you listen to native English audio and immediately repeat it out loud — like a shadow following the speaker with just a 1–2 second delay. Unlike passive listening or grammar drills, shadowing forces your brain and mouth muscles to simultaneously process and reproduce real speech patterns. Research shows it significantly improves pronunciation accuracy, intonation, rhythm, connected speech, listening comprehension, and speaking fluency — making it one of the most effective methods for IELTS Speaking preparation and real-world English communication.

Shadowing technique: read the full step-by-step guide →

Shadowing Practice: Analyzing Statements of Cash Flows 1 (2025 CFA® Level I Exam – FSA – Learning Module 4) - Learn English Speaking with Video

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Vocabulary and speaking notes for this lesson

Key vocabulary in this video

Phrasal verbs you will hear

Pronunciation to watch

How to practise with this video

Grammar in this video

What is the Shadowing Technique?