Let's break down NVIDIA's financial performance for Q2 2024 in a way that's easy to understand:

Financial Summary

1. Operating Activities:

   • Depreciation & Amortization: NVIDIA recorded $433 million in depreciation and amortization, which are non-cash expenses that reduce taxable income.
   • Change in Working Capital: There was a negative change of $1.66 billion, indicating an increase in current liabilities or a decrease in current assets, which could impact liquidity.

2. Earnings:

   • Revenue: NVIDIA generated $30.04 billion in revenue, which is a substantial figure indicating strong sales performance.
   • Gross Profit: The gross profit was $22.574 billion, resulting in a high gross profit margin of 75.15%, showing efficient cost management.
   • Net Income: The net income was $16.599 billion, reflecting strong profitability.

3. Profitability Metrics:

   • Operating Margin: The operating margin is 62.06%, indicating a high level of efficiency in managing operating expenses.
   • Net Profit Margin: The net profit margin is 55.26%, which is very healthy and shows that a significant portion of revenue is converted into profit.
   • Return on Equity: At 28.54%, this metric shows that NVIDIA is effectively using shareholders' equity to generate profits.

4. Liquidity and Solvency:

   • Current Ratio: The current ratio is 4.27, indicating that NVIDIA can easily cover its short-term liabilities with its short-term assets.
   • Liabilities to Equity Ratio: At 0.47, this suggests a balanced approach to financing with debt and equity.

5. Cash Flow:

   • Free Cash Flow: NVIDIA has a free cash flow of $19.024 billion, which is higher than its net income, indicating strong cash generation.

6. Per Share Metrics:

   • Earnings Per Share, Basic: $0.675, and diluted EPS is $0.668, reflecting the company's profitability on a per-share basis.

7. Other Important Metrics:

   • Piotroski F-Score: 8, which is a high score indicating strong financial health.
   • Net Debt / EBITDA: -1.38, suggesting NVIDIA has more cash than debt, which is a positive sign.

Pros and Cons

Pros:

• Strong profitability with high margins and return on equity.
• Excellent liquidity position with a high current ratio.
• Strong cash flow generation, exceeding net income.
• High Piotroski F-Score indicating robust financial health.

Cons:

• Negative change in working capital, which could impact liquidity if not managed properly.

Recommendation

Based on the financial data, NVIDIA appears to be in excellent financial health with strong profitability, liquidity, and cash flow metrics. The high Piotroski F-Score further supports this positive outlook. However, potential investors should keep an eye on the change in working capital.

Rating: 5/5

This rating reflects NVIDIA's strong financial position and profitability. However, please remember that this is not financial advice. It's important to conduct your own research and consider your financial situation before making investment decisions.

For more detailed information, you can refer to the source provided:

• Source for NVIDIA Financial Data

Sure! Let's break down these financial metrics and concepts:

1. Piotroski F-Score

The Piotroski F-Score is a financial score developed by Joseph Piotroski to assess the financial strength of a company. It is particularly useful for value investors looking to identify potentially undervalued stocks. The score ranges from 0 to 9, with higher scores indicating better financial health. The F-Score is based on nine criteria, which are divided into three categories: profitability, leverage/liquidity, and operating efficiency. Here’s a brief overview of the criteria:

• Profitability:

  • Positive net income
  • Positive operating cash flow
  • Higher return on assets (ROA) compared to the previous year

• Leverage, Liquidity, and Source of Funds:

  • Lower ratio of long-term debt to total assets compared to the previous year
  • Higher current ratio (current assets/current liabilities) compared to the previous year

• Operating Efficiency:

  • Higher gross margin compared to the previous year
  • Higher asset turnover ratio compared to the previous year
  • No new shares issued compared to the previous year

A higher F-Score suggests that a company is financially healthy and may be a good investment opportunity.

2. Return on Equity (ROE)

Return on Equity (ROE) is a measure of a company's profitability relative to shareholders' equity. It indicates how effectively management is using a company’s assets to create profits. The formula for ROE is:

[ \text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} ]

• Net Income: The profit of the company after all expenses, taxes, and costs have been deducted.
• Shareholders' Equity: The net assets owned by shareholders, calculated as total assets minus total liabilities.

A higher ROE indicates that the company is more efficient at generating profits from every dollar of equity, which is generally viewed positively by investors.

3. Cash Flow vs. Net Income

It is possible for a company to have higher cash flow than net income due to several factors:

• Non-Cash Expenses: Net income includes non-cash expenses like depreciation and amortization. These expenses reduce net income but do not affect cash flow. For example, if a company has significant depreciation, it will lower net income but not impact cash flow.

• Changes in Working Capital: Cash flow can be affected by changes in working capital (current assets minus current liabilities). If a company collects receivables faster or delays payables, it can increase cash flow without affecting net income immediately.

• Timing Differences: Cash flow reflects actual cash transactions, while net income is based on the accrual accounting method, which recognizes revenue and expenses when they are incurred, not necessarily when cash is exchanged.

• One-Time Gains: A company might have one-time gains or losses that affect net income but do not impact cash flow. For example, selling an asset might generate cash but may not be reflected in net income if it was not part of regular operations.

In summary, cash flow provides a clearer picture of a company's liquidity and operational efficiency, while net income reflects profitability according to accounting principles. Both metrics are important for evaluating a company's financial health.