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feat(skills): add earnings analysis skill for financial statement assessment

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Adds a new bundled skill for analyzing company financial statements with
a structured 9-step framework including Buffett competitive advantage
scoring, quality of earnings assessment, and SEC filing qualitative
analysis. Includes reference files for sector benchmarks and scoring
criteria.

Co-Authored-By: Claude Opus 4.6 <noreply@anthropic.com>
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Jiayuan Zhang 2026-02-12 16:53:21 +08:00
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---
name: Earnings Analysis
description: >-
Analyze a company's financial statements (income statement, balance sheet,
cash flow statement) to assess financial health, earnings quality, and
competitive advantage. Use when the user asks to read/analyze financial
statements, check earnings quality, assess financial health, evaluate
profitability trends, or screen for competitive moats.
version: 1.0.0
metadata:
emoji: "\U0001F4D1"
requires:
env:
- FINANCIAL_DATASETS_API_KEY
tags:
- finance
- earnings
- analysis
- statements
- buffett
userInvocable: true
disableModelInvocation: false
---
## Instructions
You are performing a structured financial statement analysis. Follow all steps in order and show your work. Output language must match the user's input language.
### Progress Checklist
```
Earnings Analysis Progress:
- [ ] Step 1: Gather financial data
- [ ] Step 2: Income statement analysis
- [ ] Step 3: Balance sheet analysis
- [ ] Step 4: Cash flow statement analysis
- [ ] Step 5: Buffett competitive advantage scoring
- [ ] Step 6: Quality of earnings assessment
- [ ] Step 7: SEC filing qualitative analysis
- [ ] Step 8: Peer comparison (if requested)
- [ ] Step 9: Present findings
```
### Step 1: Gather Financial Data
Use `data` tool with `domain="finance"` for all calls.
1. **Annual financial statements** (5 years):
```
action: "get_all_financial_statements"
params: { ticker: "[TICKER]", period: "annual", limit: 5 }
```
This returns income statements, balance sheets, and cash flow statements together.
2. **Quarterly financial statements** (last 4 quarters):
```
action: "get_all_financial_statements"
params: { ticker: "[TICKER]", period: "quarterly", limit: 4 }
```
3. **Current financial metrics**:
```
action: "get_financial_metrics_snapshot"
params: { ticker: "[TICKER]" }
```
4. **Company facts**:
```
action: "get_company_facts"
params: { ticker: "[TICKER]" }
```
Extract: `sector`, `industry` — needed for benchmark comparisons in later steps.
5. **Current stock price**:
```
action: "get_price_snapshot"
params: { ticker: "[TICKER]" }
```
### Step 2: Income Statement Analysis
Analyze the income statement across all 5 annual periods. Calculate and present:
1. **Revenue trend**:
- Year-over-year growth rate for each year
- 5-year CAGR: `(Revenue_latest / Revenue_earliest)^(1/years) - 1`
- Flag any years with revenue decline
2. **Margin analysis** (calculate for each year, show the trend):
- Gross Margin = Gross Profit / Revenue
- Operating Margin = Operating Income / Revenue
- Net Margin = Net Income / Revenue
3. **Margin benchmarks** (from [financial-ratios-benchmarks.md](references/financial-ratios-benchmarks.md)):
- Compare each margin to sector benchmarks
- Flag margins that are significantly above or below sector range
4. **EPS analysis**:
- EPS trend over 5 years
- EPS growth consistency (note any years of decline)
5. **Expense structure**:
- Cost of revenue as % of revenue (trend)
- SG&A as % of revenue (trend)
- R&D as % of revenue (trend, if applicable)
- Flag any expense category growing faster than revenue
Present as a table:
| Metric | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | 5Y CAGR |
|--------|--------|--------|--------|--------|--------|---------|
### Step 3: Balance Sheet Analysis
Analyze the balance sheet across all 5 annual periods:
1. **Liquidity**:
- Current Ratio = Current Assets / Current Liabilities
- Quick Ratio = (Current Assets - Inventory) / Current Liabilities
- Cash and equivalents trend
2. **Leverage**:
- Cash vs. Total Debt (short-term + long-term debt)
- Debt-to-Equity = Total Liabilities / Total Shareholders' Equity
- Interest Coverage = Operating Income / Interest Expense
- Debt payoff capacity = Total Debt / Net Income (in years)
3. **Asset quality**:
- Receivables Turnover = Revenue / Accounts Receivable
- Inventory Turnover = Cost of Revenue / Inventory (if applicable)
- Goodwill as % of Total Assets (flag if > 30%)
4. **Equity structure**:
- Retained earnings: year-over-year changes (growing?)
- Preferred stock: present or absent?
- Treasury stock: present? growing? (indicates buybacks)
5. **Working capital trend**:
- Net Working Capital = Current Assets - Current Liabilities
- Direction of change over 5 years
Compare key ratios to sector benchmarks from [financial-ratios-benchmarks.md](references/financial-ratios-benchmarks.md).
### Step 4: Cash Flow Statement Analysis
Analyze cash flow statements across all 5 annual periods:
1. **Operating cash flow quality**:
- OCF vs. Net Income ratio for each year
- Target: OCF/NI > 1.0 (cash earnings exceed accrual earnings)
- Trend direction
2. **Free cash flow**:
- FCF = Operating Cash Flow - Capital Expenditure
- FCF Margin = FCF / Revenue
- 5-year FCF trend and CAGR
3. **Capital intensity**:
- CapEx / Revenue ratio
- CapEx / Net Income ratio (Buffett benchmark: < 25% excellent, < 50% acceptable)
- Is CapEx growing faster than revenue? (potential red flag)
4. **Cash flow composition**:
- Net cash from operating activities (should be consistently positive)
- Net cash from investing activities (negative = investing in growth)
- Net cash from financing activities (pattern: debt vs. equity funded?)
5. **Shareholder returns**:
- Dividends paid (from financing activities)
- Share buybacks / treasury stock repurchase
- Total payout ratio = (Dividends + Buybacks) / Net Income
- Is the company returning cash while maintaining growth?
Present a summary table:
| Metric | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|--------|--------|--------|--------|--------|--------|
### Step 5: Buffett Competitive Advantage Scoring
Apply the scoring framework from [buffett-checklist.md](references/buffett-checklist.md).
For each of the 13 criteria across 4 categories:
1. Calculate the metric value from the data gathered in Steps 1-4
2. Determine the score based on the threshold table
3. Note the sector-specific caveats (Financials, Utilities, REITs, Growth-stage)
Present the full scorecard table and the overall rating (Excellent / Good / Average / Weak).
### Step 6: Quality of Earnings Assessment
Assess whether reported earnings are backed by real cash and sustainable operations:
1. **Accrual ratio**:
- Formula: (Net Income - Operating Cash Flow) / Total Assets
- Interpretation: Lower is better. High positive values suggest earnings are driven by accruals rather than cash.
- Red flag threshold: > 10%
2. **Revenue recognition quality**:
- Compare Accounts Receivable growth rate vs. Revenue growth rate
- If AR grows significantly faster than revenue → potential aggressive revenue recognition
- Red flag threshold: AR growth > Revenue growth + 5 percentage points
3. **Inventory quality** (if applicable):
- Compare Inventory growth rate vs. Cost of Revenue growth rate
- Rising inventory vs. flat/declining COGS → potential obsolescence risk
- Red flag threshold: Inventory growth > COGS growth + 10 percentage points
4. **One-time items**:
- Identify significant non-recurring charges or gains in the income statement
- Calculate adjusted net income excluding one-time items
- Compare adjusted vs. reported margins
5. **Deferred revenue trend** (if applicable):
- Growing deferred revenue is a positive signal (future revenue already contracted)
- Declining deferred revenue may signal weakening demand pipeline
Summarize quality of earnings as: **High** / **Moderate** / **Low** with supporting evidence.
### Step 7: SEC Filing Qualitative Analysis
Pull and analyze the most recent annual or quarterly filing:
1. **Get filing list**:
```
action: "get_filings"
params: { ticker: "[TICKER]", filing_type: "10-K", limit: 1 }
```
If 10-K is not recent enough, also pull 10-Q:
```
action: "get_filings"
params: { ticker: "[TICKER]", filing_type: "10-Q", limit: 1 }
```
2. **Read MD&A section** (Management's Discussion and Analysis):
```
action: "get_filing_items"
params: { ticker: "[TICKER]", filing_type: "10-K", item: "7" }
```
For 10-Q, MD&A is item "2":
```
action: "get_filing_items"
params: { ticker: "[TICKER]", filing_type: "10-Q", item: "2" }
```
3. **Read Risk Factors**:
```
action: "get_filing_items"
params: { ticker: "[TICKER]", filing_type: "10-K", item: "1A" }
```
4. **Extract and analyze**:
- Management's explanation of revenue and margin trends
- Forward-looking statements and guidance
- Key risk factors that could impact financial health
- Any disclosures about accounting policy changes
- Cross-validate: Does management narrative align with the quantitative data from Steps 2-4?
- Flag contradictions between management tone and actual numbers
5. **Summarize key insights**:
- What management says about the business trajectory
- Material risks not visible in the numbers alone
- Any changes in risk factors vs. prior filings (if noticeable)
### Step 8: Peer Comparison (Conditional)
**Execute this step only when the user explicitly requests peer comparison or industry benchmarking.**
1. **Identify peers**:
- Use the `sector` and `industry` from `get_company_facts`
- Select 2-3 publicly traded competitors in the same industry
- If the user specifies peers, use those instead
2. **Pull peer data** (for each peer):
```
action: "get_financial_metrics_snapshot"
params: { ticker: "[PEER_TICKER]" }
```
```
action: "get_income_statements"
params: { ticker: "[PEER_TICKER]", period: "annual", limit: 1 }
```
```
action: "get_balance_sheets"
params: { ticker: "[PEER_TICKER]", period: "annual", limit: 1 }
```
3. **Comparative table**:
| Metric | [TARGET] | [PEER 1] | [PEER 2] | [PEER 3] | Sector Avg |
|--------|----------|----------|----------|----------|------------|
| Revenue Growth (YoY) | | | | | |
| Gross Margin | | | | | |
| Net Margin | | | | | |
| ROE | | | | | |
| D/E Ratio | | | | | |
| FCF Margin | | | | | |
| P/E Ratio | | | | | |
4. **Competitive position assessment**:
- Where does the target company rank among peers on each metric?
- Identify clear advantages and disadvantages relative to peers
- Note if the target trades at a premium or discount to peers and whether it's justified
### Step 9: Present Findings
Compile the full analysis into a structured report. Follow this exact structure:
#### 1. Executive Summary
- Company name, ticker, sector, current price
- One-paragraph thesis: Is this a financially healthy company with a durable competitive advantage?
- Financial health rating from Buffett scorecard (Excellent / Good / Average / Weak)
- Earnings quality assessment (High / Moderate / Low)
#### 2. Financial Health Scorecard
- Full Buffett checklist scorecard table from Step 5
- Total score and rating
#### 3. Trend Dashboard
- 5-year key metrics trend table from Steps 2-4:
| Metric | Y1 | Y2 | Y3 | Y4 | Y5 | Trend |
|--------|----|----|----|----|----|----|
| Revenue | | | | | | arrow |
| Gross Margin | | | | | | arrow |
| Net Margin | | | | | | arrow |
| ROE | | | | | | arrow |
| D/E Ratio | | | | | | arrow |
| FCF | | | | | | arrow |
| OCF/NI | | | | | | arrow |
| CapEx/NI | | | | | | arrow |
Use directional indicators in the Trend column.
#### 4. Quality of Earnings
- Summary from Step 6 with key metrics and assessment
#### 5. Key Strengths & Red Flags
- **Strengths**: List 3-5 financial strengths with supporting data
- **Red Flags**: List any warning signs discovered during analysis. If none, state "No material red flags identified."
Common red flags to watch for:
- Revenue growth but declining margins
- Net income growing but OCF declining
- AR growing faster than revenue
- Inventory building up vs. flat COGS
- Rising debt with declining interest coverage
- Retained earnings declining
- Large goodwill relative to total assets
- CapEx consistently > 50% of net income
- Management tone in MD&A contradicts financial data
#### 6. SEC Filing Insights
- Key findings from Step 7
- Management's outlook and material risks
#### 7. Peer Comparison (if Step 8 was executed)
- Comparative table and competitive position assessment
### Guardrails
- Always state the date range of financial data used.
- If any data is missing or unavailable, explicitly note it and adjust the analysis scope.
- Do not present calculated ratios as precise — round to one decimal place.
- Clearly distinguish between facts (from data) and interpretive conclusions.
- The Buffett scorecard is a screening framework, not a buy/sell recommendation. State this in the output.
- For non-US companies or companies not filing with the SEC, skip Step 7 and note the limitation.
- Output language must match the user's input language (Chinese input → Chinese output, English input → English output).

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# Buffett Competitive Advantage Checklist
Score each criterion and calculate a total. Use this to assess whether a company has a durable competitive advantage (economic moat).
## Scoring System
Total: 100 points across 4 categories (25 points each).
### Category 1: Profitability (25 points)
| # | Criterion | Excellent | Good | Weak |
|---|-----------|-----------|------|------|
| 1 | **Gross Margin** | > 40% → **10 pts** | 30-40% → **6 pts** | < 30% → **2 pts** |
| 2 | **Net Margin** | > 20% → **10 pts** | 10-20% → **6 pts** | < 10% → **2 pts** |
| 3 | **Return on Equity (ROE)** | > 15% → **5 pts** | 10-15% → **3 pts** | < 10% → **1 pt** |
How to calculate:
- Gross Margin = Gross Profit / Revenue
- Net Margin = Net Income / Revenue
- ROE = Net Income / Total Shareholders' Equity
- Use the most recent annual figures; cross-check with 5-year average
### Category 2: Balance Sheet Health (25 points)
| # | Criterion | Pass | Partial | Fail |
|---|-----------|------|---------|------|
| 4 | **Cash > Total Debt** | Yes → **8 pts** | Cash > 50% of Debt → **4 pts** | Cash < 50% of Debt → **1 pt** |
| 5 | **Debt-to-Equity Ratio** | < 0.8 → **7 pts** | 0.8-1.5 → **4 pts** | > 1.5 → **1 pt** |
| 6 | **No Preferred Stock** | None → **5 pts** | — | Has Preferred → **0 pts** |
| 7 | **Retained Earnings Growth** | Growing 5 consecutive years → **5 pts** | Growing 3-4 years → **3 pts** | Declining or flat → **1 pt** |
How to calculate:
- Cash = Cash and Cash Equivalents + Short-term Investments
- Total Debt = Short-term Debt + Long-term Debt
- D/E = Total Liabilities / Total Shareholders' Equity
- Retained Earnings: Compare year-over-year from balance sheets
Special note on D/E:
- Exclude operating lease liabilities from "debt" for this assessment (they are contractual obligations, not financial debt)
- If treasury stock is large, it reduces equity and inflates D/E — note this in analysis
### Category 3: Cash Flow Quality (25 points)
| # | Criterion | Excellent | Good | Weak |
|---|-----------|-----------|------|------|
| 8 | **CapEx / Net Income** | < 25% → **10 pts** | 25-50% → **6 pts** | > 50% → **2 pts** |
| 9 | **Operating CF > Net Income** | OCF/NI > 1.0 → **8 pts** | OCF/NI = 0.8-1.0 → **4 pts** | OCF/NI < 0.8 → **1 pt** |
| 10 | **Shareholder Returns** | Buybacks + Dividends → **7 pts** | Dividends only → **4 pts** | Neither → **1 pt** |
How to calculate:
- CapEx: Capital Expenditure from cash flow statement (use absolute value)
- Operating CF: Net Cash from Operating Activities
- Buybacks: Check if Treasury Stock increased year-over-year, or look at "repurchase of common stock" in financing activities
- Dividends: Look at "dividends paid" in financing activities
Note on CapEx:
- One-time large CapEx (e.g., new factory, data center buildout) should be noted but not penalized if the 5-year average CapEx/NI is still within range
- Asset-light businesses (software, services) naturally score well here
### Category 4: Consistency (25 points)
| # | Criterion | Excellent | Good | Weak |
|---|-----------|-----------|------|------|
| 11 | **Revenue Growth Streak** | 5+ consecutive years growing → **10 pts** | 3-4 years → **6 pts** | < 3 years → **2 pts** |
| 12 | **Net Income Growth Streak** | 5+ consecutive years growing → **10 pts** | 3-4 years → **6 pts** | < 3 years → **2 pts** |
| 13 | **Recession Resilience** | Profitable through last recession → **5 pts** | Revenue dip < 10% → **3 pts** | Significant losses → **1 pt** |
How to assess:
- Revenue/NI growth: Check year-over-year changes for the last 5 years
- Recession resilience: Check 2020 (COVID) and 2022 (rate hikes) performance. For older data, check 2008-2009 if available.
- A single flat year in an otherwise consistent growth streak can be scored as "Good"
## Score Interpretation
| Total Score | Rating | Interpretation |
|-------------|--------|----------------|
| 80-100 | **Excellent** | Strong durable competitive advantage. Consistent profitability, fortress balance sheet, capital-light operations. Classic Buffett-style investment candidate. |
| 60-79 | **Good** | Solid business with some competitive advantages. May have minor weaknesses in one category. Worth deeper investigation. |
| 40-59 | **Average** | Mediocre competitive position. Multiple areas of concern. Higher risk of margin erosion or competitive disruption. |
| < 40 | **Weak** | No clear competitive advantage. High debt, inconsistent earnings, or capital-intensive operations. Not a typical Buffett investment. |
## Sector-Specific Caveats
- **Financials**: Skip gross margin (criterion 1). Use net interest margin > 3% as substitute for 10 pts. D/E ratio thresholds don't apply — use Tier 1 Capital Ratio > 10% for 7 pts instead.
- **Utilities**: Naturally capital-intensive (CapEx criterion will score low). Offset by checking regulated return stability. If regulated ROE is consistently 9-11%, award 6 pts for criterion 8.
- **REITs**: Required to pay out 90%+ as dividends, so retained earnings won't grow. Skip criterion 7; award 5 pts if FFO per share grows consistently instead.
- **Growth-stage Tech**: May not yet have 5 years of profitability. Score consistency based on revenue growth and gross margin expansion trajectory. Note that the overall score may be artificially low.
## Output Format
Present the scorecard as a table:
| # | Criterion | Value | Score | Max |
|---|-----------|-------|-------|-----|
| 1 | Gross Margin | 43.2% | 10 | 10 |
| 2 | Net Margin | 25.1% | 10 | 10 |
| ... | ... | ... | ... | ... |
| | **Total** | | **XX** | **100** |
| | **Rating** | | **Excellent/Good/Average/Weak** | |

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# Financial Ratios Benchmarks by Sector
Use the company's `sector` from `get_company_facts` to look up benchmark ranges below. Compare the company's ratios against these benchmarks and note deviations.
## Profitability Benchmarks
| Sector | Gross Margin | Operating Margin | Net Margin | ROE | ROA |
|--------|-------------|-----------------|------------|-----|-----|
| Communication Services | 50-60% | 15-25% | 10-18% | 12-20% | 5-10% |
| Consumer Discretionary | 35-50% | 8-15% | 5-10% | 15-25% | 5-10% |
| Consumer Staples | 35-45% | 12-18% | 8-12% | 20-30% | 8-12% |
| Energy | 30-50% | 10-20% | 5-15% | 10-20% | 5-10% |
| Financials | N/A | 25-35% | 15-25% | 10-15% | 1-2% |
| Health Care | 55-70% | 15-25% | 10-20% | 15-25% | 8-12% |
| Industrials | 25-35% | 10-15% | 6-10% | 15-20% | 5-8% |
| Information Technology | 55-70% | 20-30% | 15-25% | 20-35% | 10-15% |
| Materials | 25-35% | 10-18% | 5-12% | 10-18% | 5-8% |
| Real Estate | 55-70% | 25-40% | 15-30% | 5-10% | 2-5% |
| Utilities | 35-50% | 15-25% | 8-15% | 8-12% | 3-5% |
## Balance Sheet Benchmarks
| Sector | Current Ratio | Quick Ratio | D/E Ratio | Interest Coverage |
|--------|--------------|-------------|-----------|-------------------|
| Communication Services | 1.0-1.5 | 0.8-1.2 | 0.8-1.5 | 4-8x |
| Consumer Discretionary | 1.2-2.0 | 0.8-1.5 | 0.5-1.2 | 5-10x |
| Consumer Staples | 1.0-1.5 | 0.6-1.0 | 0.5-1.0 | 8-15x |
| Energy | 1.0-1.5 | 0.8-1.2 | 0.3-0.8 | 5-10x |
| Financials | N/A | N/A | 2.0-8.0 | N/A |
| Health Care | 1.5-2.5 | 1.2-2.0 | 0.3-0.8 | 8-15x |
| Industrials | 1.2-2.0 | 0.8-1.5 | 0.5-1.0 | 6-12x |
| Information Technology | 2.0-3.5 | 1.5-3.0 | 0.2-0.6 | 15-30x |
| Materials | 1.5-2.5 | 1.0-1.5 | 0.4-0.8 | 6-12x |
| Real Estate | 1.0-1.5 | 0.5-1.0 | 0.8-1.5 | 3-5x |
| Utilities | 0.8-1.2 | 0.5-0.8 | 1.0-2.0 | 3-5x |
## Cash Flow Benchmarks
| Sector | FCF Margin | CapEx/Revenue | Op. CF / Net Income |
|--------|-----------|---------------|---------------------|
| Communication Services | 10-20% | 10-20% | 1.2-1.8x |
| Consumer Discretionary | 5-12% | 3-8% | 1.1-1.5x |
| Consumer Staples | 8-15% | 3-6% | 1.2-1.5x |
| Energy | 5-15% | 15-30% | 1.5-2.5x |
| Financials | N/A | 1-3% | N/A |
| Health Care | 15-25% | 3-8% | 1.2-1.8x |
| Industrials | 5-12% | 3-8% | 1.2-1.6x |
| Information Technology | 20-35% | 3-10% | 1.2-1.8x |
| Materials | 5-12% | 5-12% | 1.3-2.0x |
| Real Estate | 15-30% | 5-15% | 1.5-3.0x |
| Utilities | 5-10% | 15-25% | 2.0-3.5x |
## Usage Notes
- **Financials sector**: Gross margin and current/quick ratios are not meaningful for banks and insurers. Use net interest margin and capital adequacy ratios instead.
- **Real Estate**: High depreciation makes net margin less useful. Focus on Funds From Operations (FFO).
- **Growth-stage companies**: May have negative margins. Compare against growth-stage peers rather than mature sector benchmarks.
- **Cyclical sectors** (Energy, Materials, Industrials): Use cycle-average margins (5-7 years) rather than single-year comparisons.
- **Post-M&A**: Goodwill and amortization may distort margins for 1-2 years after acquisitions. Note any large acquisitions.
## Buffett's Rules of Thumb (Quick Reference)
| Metric | Excellent | Good | Weak |
|--------|-----------|------|------|
| Gross Margin | > 40% | 30-40% | < 30% |
| Net Margin | > 20% | 10-20% | < 10% |
| ROE | > 15% | 10-15% | < 10% |
| D/E Ratio | < 0.5 | 0.5-0.8 | > 0.8 |
| CapEx / Net Income | < 25% | 25-50% | > 50% |
| Debt Payoff (years) | < 2 | 2-4 | > 4 |