Taiwan Cash-Flow Waterfall — every step from net income to free cash flow
“Is the profit on paper, or actually collected?” The waterfall breaks the walk from net income to operating cash flow to free cash flow into one bar per adjustment — add-backs, working-capital drag, capital expenditure — every step additive and re-checkable.
How to read the waterfall
Each bar is a single add or subtract from an opening line item to a closing one. Because the chain is additive rather than a weighted score, you can re-add every bar yourself — that is the whole reason we chose a bridge over a rating: it can be recomputed.
Why net income and cash flow diverge
Net income is accrual-based; cash flow is cash-based. The gap comes mostly from non-cash charges such as depreciation and from working-capital swings in receivables, inventory and payables. A large gap is not automatically a red flag — fast-growing firms routinely absorb working capital. The chart shows where the money went; the judgement stays with you.
What we deliberately do not do
We do not publish a 'cash-flow quality score' that squashes the whole bridge into one number. Heavy depreciation add-backs and working-capital drag mean entirely different things for an asset-heavy manufacturer and a software firm; one score erases exactly the difference worth reading.
We also do not infer intent behind the gap: negative free cash flow can be a capacity build-out or deteriorating collections, and on the face of the statement the two look alike. We expose every bar with its source line and leave the reading to you.