Yellow flags are danger signals warning of long-term problems, but not necessarily in the next quarter.
Depreciation accounts for the deterioration and obsolescence of buildings and capital equipment. To remain viable, a company must be continuously upgrading and replacing its aging equipment.
You can tell if that’s happening by comparing the depreciation credit in the operating cash flows section to the capital equipment expenditures listed in the investing section of the cash flow statement. At a minimum, capital expenditures should equal the depreciation charge, and ideally capital expenditures should exceed depreciation.
Table 12-16 shows how Intel and Xerox did in that category. After looking at that data, ...