First Principles Financial Analysis

Problem

Financial reporting often lists metrics without a decision framework: whether growth comes from volume, price, or cycles; whether profit is flattered by non-recurring items; whether cash flow supports receivables and inventory; and whether valuation has a peer reference point. This skill turns those questions into a structured analysis workflow.

How it works

It centers on a seven-dimension framework covering growth, profit quality, cash flow, asset quality, capital returns, valuation, and capital allocation. Key steps include:
- Scope check: company code, reporting period, focus area, and benchmark;
- Data collection: prioritize annual/quarterly reports, broker research, and industry indicators;
- Scoring: produce comparable judgments for each dimension;
- Peer comparison: select 2-3 comparable companies to test pricing power and valuation percentile;
- Scenario analysis: build bull, base, and bear cases to identify upside and downside risks.

Boundaries

Best for listed-company financial statements, peer comparison, and valuation stress tests; not for undisclosed information, subjective forecasts, or unverified management promises. Data sources must be traceable, management narratives should not be treated as facts, and confidence should be reduced when data are missing or the industry cycle shifts sharply.