Teaching students to use Perplexity as a research co-pilot — without surrendering judgment to the machine.
Six pillars. Each one builds the next. By the end you can run a real ticker from filing pull to written thesis in under an hour.
Why reported profit and cash burn can disagree by billions in the same 10-K, and why the cash flow statement is the truth-teller. Three ways earnings get inflated without breaking accounting rules.
Where Perplexity wins and where you still own the call. Three prompt patterns that return forensic signal instead of marketing copy — plus five worked story prompts you can run today.
The Divergence Razor: when net income and operating cash flow tell different stories, somebody is making a choice. The cash flow statement always wins.
The Cash-Based Rule of 40 and the Zombie Death Clock. Two scoring frames that tell you whether the growth is real and whether the balance sheet survives a credit shock.
Seven business types, seven models. Applying a SaaS DCF to a REIT is malpractice. Match the model to the business: REIT FFO, BDC NII, bank ROTCE, pipeline DCF/unit, and more.
The sequenced workflow. Each step assumes the previous one passed. Write the thesis before you check the price — because anchoring is the silent killer of independent judgment.
Most retail investors read the income statement and stop. They never reconcile reported earnings against the cash flow statement, and they never read the footnotes that explain the gap. Forensic analysis is the discipline of reading all three — and treating the cash flow statement as the truth-teller.
Reported profit can be inflated three ways without breaking a single accounting rule. Your job is to find which lie is hiding in this filing.
Stock-based comp, restructuring, and impairments quietly rebuilt every year. If they recur, they are operating expenses — no matter what the press release calls them.
Earnings rise while receivables balloon and payables get stretched. Cash has not moved — but the income statement says it did. The balance sheet keeps the receipts.
Channel stuffing, percent-of-completion games, capitalized costs that should have been expensed. The 10-K never lies — it just tells the truth in the footnote nobody reads.
Perplexity is the best research analyst you have ever hired. It is not — and will never be — your portfolio manager.
"Tell me about Apple" returns marketing copy. These three patterns return forensic signal.
Net income, operating cash flow, and free cash flow should tell roughly the same story. When they diverge, somebody is making a choice — and the cash flow statement always wins.
Subject to accruals, capitalization, and judgment.
Strips out non-cash items but still includes working capital.
The number that pays dividends, retires debt, and buys back shares.
Company X reports $500M net income on $180M operating cash flow. Razor = 64%. The income statement and cash flow statement disagree by two-thirds. Now you ask Perplexity:
Most investors use Revenue Growth + EBITDA margin. EBITDA is a fiction. We use OCF margin instead — because cash either showed up or it did not.
| Score | Status | What it means |
|---|---|---|
| ≥ 40 | Healthy | Growth that is not being faked. Cash supports the story. |
| 20 – 40 | Watchlist | Growth slowing, or cash conversion weakening. Read the next quarter carefully. |
| < 20 | Cash-stressed | Regardless of headline EPS, this business is consuming more than it produces. |
A zombie company is one whose interest expense exceeds its operating cash flow. It survives only by refinancing — which works until rates rise or credit tightens. Then it does not.
| OCF / Interest | Status | What it means |
|---|---|---|
| > 5× | Healthy | Coverage comfortable — interest is a small claim on cash. |
| 2 – 5× | Watch | Coverage tightening — small operational shock could compress further. |
| 1 – 2× | Zombie territory | Cash barely covers debt service. Equity holders are the residual claimants on a thin sliver. |
| < 1× | Walking dead | OCF cannot cover interest. Survival depends on capital markets staying open. |
Applying a SaaS DCF to a REIT is malpractice. A REIT FFO multiple will not tell you anything useful about a bank. Seven businesses, seven models.
WACC, FCF, terminal growth.
FFO, AFFO, NAV per share.
NAV, NII, dividend coverage.
TBV, NIM, efficiency, ROTCE.
DCF per unit, coverage, leverage.
Normalized EPS, mid-cycle multiple.
Book value, combined ratio.
The discipline is not speed. It is sequence. Each step assumes the previous one passed.
Perplexity: "Summarize {ticker}'s most recent 10-K in five paragraphs — business, segments, risks, capital structure, recent changes."
Run the Divergence Razor. If | NI − OCF | / | NI | > 25%, ask Perplexity to explain the gap before going further.
Compute Cash Rule of 40. Compute the Zombie Death Clock. Either one in red? Note it before you fall in love with the story.
Apply the model that matches the business. Triangulate against two peers. Sanity-check Perplexity's inputs against the actual filing.
Hunt the disclosures Perplexity flagged. The footnote you skip is the one the loss is hiding in.
Write your thesis before checking the price. Anchoring is the silent killer of independent judgment.
The numbers do not lie. The narratives do. AI just makes the work tractable.