Re: [CANSLIM] Cash Flow

From: Harvey Brion <hbrion@ieee.org>
Subject: Re: [CANSLIM] Cash Flow
Date: Mon, 06 May 2002 19:18:45 -0700

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The DGO datablock shows Cash Flow and defines it as follows:

"Cash Flow Per Share From Operations

Derived by adding depreciation, depletion and amortization to the
company's net income and dividing this figure by the shares outstanding.
Brackets [ ] will surround the Cash Flow figure if the net income being
used to derive the data is not from the most recently completed fiscal
year and will indicate the year the figure corresponds to."

It's important to heed the brackets when comparing Cash Flow to EPS
early in the FY before the new cash flow figure is known.  This is the
IBD criterion I referred to in yesterday's post (cash flow (per share)
exceeding  EPS by 20%).  For DFXI: Cash Flow ['00: $1.27] compares to
FY2000 EPS of $1.16, exceeding EPS by only 9%.  When the new cash flow
figure is published by DGO, it should be compared to FY2001 EPS of
$1.85.

Winston Little wrote:

>
>
   Gene R: Here is the real answer on Cash Flow:

  Ask Bill O'Neil Archives

  Thursday, January 03, 2002
  [Image]"Could you define cash flow in simple terms so
         that I can understand it?"
                           - Submitted from Saginaw, Texas

  [Image]   When a company gets paid by a customer, cash
  goes into its coffers. When the company spends cash to
  renovate an old plant, cash is going out. The sum of all
  these cash-based transactions is the cash flow.
  Investors should pay close attention to cash flow
  because it shows whether or not the company has enough
  cash on hand to run its business smoothly. A high cash
  flow also indicates the company has the financial
  resources to make new investments — be it in new staff
  or executives, more stores, or even buying back its own
  shares — in order to further grow earnings. You can
  study a company's cash flow by looking at its 10-Q or
  10-K filings with the SEC. After the income statement
  usually comes the statement of cash flows. This is
  divided into three parts: cash flow from operations,
  cash flow used in investing activities, and cash flow
  provided by or used in financing activities. In general,
  you'd like to see operating cash positive, meaning the
  company is getting more cash than it's giving out. If
  investing cash flow is negative, that's usually a good
  sign because the company is likely investing in the
  future growth of the company. The same goes for
  financial cash flow. However, it is important to look at
  the individual items to understand what's going on. For
  instance, financial cash flow might be positive because
  the company sold a lot of corporate bonds. If it already
  has long-term debt, that could be a bad sign. When
  looking for good stocks, figure out the stock's annual
  cash flow from operations per share and compare it to
  its earnings per share for the same period. When cash
  flow per share is higher than the EPS, it's usually a
  good sign. It is, however, just one of many components
  of a fundamentally strong stock. Sales and earnings
  growth, for example, are other important elements.
>


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